Potential and constraints of public debt as a tool for economic growth

Abstract

This study set out to establish the potential and constraints of public debt as a tool for economic growth. The study used secondary data for a time series of 1980 to 2010 using an error correction model. The study findings indicated that there was cointegration among the variables in the long run. Results also indicated that in the long run, public domestic debt has a negative but insignificant effect with GDP growth rate. The results also showed that in the long run, external debt (ED) has a negative and also insignificant relationship with GDP growth rate. In the long run, the square of domestic debt and the square of external debt reveal that Kenya has not yet reached a point of debt unsustainability as currently, the relationship is positive but insignificant for external debt and negative but also insignificant for domestic debt. Results also showed that in the long run workforce population ages 15-64 (L) has a negative but insignificant relationship with GDP growth rate.