The Effect of Financial Deepening on Economic Growth in Kenya

Abstract

Financial deepening refers to an increase in the supply of financial assets in an economy. The connection between financial development and economic growth has been of interest in development and finance literature. It’s against this background that this study was carried out to establish the effect of financial deepening on economic growth in Kenya. The basis of this study was the the finance-growth nexus which argues that the development of financial sector significantly promotes economic development. Secondary data from the year 1995-2014 used was collected from the Kenya National Bureau of Statistics, Central Bank of Kenya, Nairobi Stock Exchange and World Bank. Descriptive research design was adopted for this study whose objective was to investigate the effect financial deepening on economic growth in Kenya. The findings of the study revealed a positive correlation between the Gross Domestic Product (GDP) and Financial Deepening variables. The study therefore lends support to the finance-growth nexus and recommendation to policy makers and financial sector regulators is to formulate policies which will help in the growth of capital markets especially the bond market to helps us achieve our vision of transforming the country into middle-income level and industrializing economy by the year 2030