Abstract: Economic growth has become a subject of great discussions and debates all over the world. This is because it is a global necessity for alleviating poverty. The Kenyan economy has been experiencing mixed growth levels since independence. With the launching of the Vision 2030 Programme in 2008 that is expected to steer Kenya to a middle- income country, improving the growth rate in Kenya is of paramount importance. The main objective of this study was to examine macroeconomic determinants of economic growth in Kenya. Specific objectives were to determine the effects of inflation rates, gross fixed capital formation, exports, government expenditure, and foreign direct investments on economic growth in Kenya. The method of study adopted in this study is a causal relationship research design. The study utilized secondary data sourced from the Central Bank of Kenya, Kenya Economic surveys, World Bank Development Indicators, Kenya National Bureau of statistics and other written materials. The study period spanned from 1971 to 2011. The time series properties of the data were, first, analyzed using the Augmented Dickey Fuller (ADF) test and then tested for Cointegration using the Engle Granger test. The empirical results derived indicate that all the variables of interest were stationary at level allowing Ordinary Least Square (OLS) analysis to be used to analyze data. The study also found that there is a Cointegration relationship between GDP growth and its macroeconomic determinants. Findings from the study show that government expenditure and GDP for the previous period were significant in influencing economic growth in Kenya. Inflation and exports had weak inverse and positive relationships with growth respectively, both of them statistically significant at 10 percent significance level. Foreign direct investment and gross fixed capital formation, though their coefficients were positive had no significant effects on economic growth at 10% significance level. The implication for policy is that in order for Kenya to foster and sustain growth, closer attention should be given to factors that promote exports, pursuance by the monetary policy authorities of the objective of maintaining inflation rate to single digit, and for the government to continue spending on the productive sectors of the economy such as provision of health care, education, infrastructure, and water and sanitation.
Keywords: Economic growth, Gross domestic Product, Gross fixed capital formation, General Government Final consumption expenditure, Exports, Foreign Direct Investments, Inflation.
Title: A STUDY ON MACROECONOMIC DETERMINANTS OF ECONOMIC GROWTH IN KENYA
Author: GACHINI, S.K.
International Journal of Management and Commerce Innovations,
ISSN 2348-7585 (Online)
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