Economics
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Item Effect of fiscal policy variables on private investment in Kenya(Chuka University, 2024) Chege Cecilia NjeriThe tenacity of the country's entrepreneurs and the favorable climate has been credited with the rapid expansion of private sector activity in the Kenyan economy. New technology and increased private investment propel the country's economy toward full employment, where resources are best used and economic development is achieved. Investment levels should be over 32 percent of Gross domestic product, with state investment comprising above 9 percent of Gross domestic product and private investment being 24 percent of Gross domestic product, according to Vision 2030. This objective does not appear to be attainable at the current growth pace. Several studies have examined the nexus between fiscal policy variables and private investment. However, there are mixed findings across countries and regions. For instance, some studies find a positive relationship, others find an insignificant effect, while others find a negative relationship. The contrasting findings could be due to differences in methodology, measurement of variables or country specific differences. Kenya has a dynamic economy with unique characteristics. It is therefore necessary to conduct further study in the country using a robust methodology and recent data. This study contributes to the existing literature by providing an empirical investigation of the effect of fiscal policy variables on private investment in Kenya using data covering the period of 1980- 2022.The specific objectives were; development government expenditure, recurrent government expenditure and corporate tax effect on private investment in Kenya. The study's theoretical foundations included the Keynesian Approach (Crowding in and crowding out) model and the Neo-classical Approach Theory (Tobin’s Q 1969). To find the casual effect link between the variables, a casual study design was used. A sample of 42 years from the yearly series data was taken from the websites of the African Development Indicators, Kenya National Bureau of Statistics, and Kenya Revenue Authority for the years 1980 to 2022. The study employed the autoregressive distributed lag (ARDL) model and the ECM was estimated since there was cointegration. It was found that development government expenditure had a positive (1.3860) significant effect on private investment in the short run and a negative (-1.2120) insignificant effect on private investment in the Long run. This could have been attributed to by factors such as efficient resource allocation in the short run. Government spending on infrastructure, Social security, education, research and technology has a positive effect on private investment. There was a negative (-0.3631 and -2.7596) significant effect of recurrent government expenditure both in the short run and Long run respectively on private investment in Kenya. This implies that more government spending on recurring costs may increase the demand for borrowing by the government, which would raise interest rates hence, crowd-out private investments. The findings demonstrated that corporate tax had a significant negative (-0.3088) effect on the short run and positive (0.4161) effect on the Long run on private investment in Kenya. A rise in corporate taxes immediately raises a company's short-term investment costs. Higher taxes lower businesses' after-tax profits, which may deter them from expanding their operations or making new investments. In the long run, businesses might eventually modify their tactics to account for increased taxes. This entails streamlining their operations to lessen the effect of taxes on investment, maximizing their capital structure, or looking for tax breaks. According to the study, the government is recommended to allocate funding for development in a balanced manner that considers both the short-term and long-term benefits of stimulation. It suggests that the government implement changes to lower costs and improve the efficacy of ongoing expenditures. This means reducing bureaucracy, optimizing staffing levels, and streamlining the procurement process. In order to facilitate investment planning, a consistent corporation tax policy may be implemented by allocating revenue money to worthwhile endeavors that will increase private investment in Kenya. Future studies may be done targeting other variables as well as in other countries.Item Effect of financial deepening on private investment in Kenya(Chuka University, 2024-10) Chepkorir BrendahPrivate investment remains an important sector in the growth of economy and sustainable development in Kenya. It is envisioned to create job opportunities, distribute income and alleviate poverty. The underperforming growth rate of private investments that is below the expected growth rate of 24% has been witnessed in the past years. Since 1980, the highest growth that has been achieved is 15.2% in 2014. It then declined to 12.96% in 2021, 13.34% and 13.40% in 2022 and 2023 respectively, which are much below the projected growth rate. Existing studies in Kenya lack substantial inquiry on the relationship between financial deepening and private investment and have dealt with them separately without linking the two in a dynamic framework. Additionally, most of those studies tend to rely on a limited set of indicators of financial deepening, while employing different methods for analysis that may not be appropriate for unbiased results. The current study intended to determine the effect of financial deepening on private investment. Gross Fixed Capital Formation for the general private sector measured private investment, a dependent variable. Further, financial deepening (independent variable) was proxied by Private sector credit broad money and bank deposits (savings). The study also included public investment real interest rates and GDP Per capita as control variables. Financial intermediation theory and financial liberalization theory are the theories that guided the study. A causal research design was adopted and data were obtained from KNBS and World Development Indicators websites. STATA software was used in the analysis of the collected data. ARDL model was employed and the ECM was estimated since there was cointegration. From the findings, Private sector credit, Broad money and Bank deposits were statistically significant with positive coefficients of 0.32, 0.39 and 0.49 respectively in the short run. An increase in 1 percent of private sector credit, Broad money and Bank deposits cause private investment to increase by 0.32, 0.39 and 0.49 percent respectively. The findings show that private sector credit has a positive effect, while broad money and bank deposits have negative effect on private investment in the long run. The three models were good predictors of private investment as shown by R-squared values of 0.96, 0.94 and 0.94 respectively. The study concluded that financial deepening is important for growth of private investment in Kenya. Therefore, Financial intermediation theory is applicable in Kenya. The study recommends policymakers to conceptualize the policies that aim at facilitating financial access and inclusion for the marginalized groups in remote and rural areas. Further, the government needs to support financial sector through enhancing the growth of microfinance institutions. This will facilitate the provision of credit and savings services to individuals earning low income and owning small businesses.Item Effect of health sector expenditures on poverty rates in Kenya(Chuka University, 2025-10) Bett GidionGovernments aim to provide sufficient health coverage to maintain a healthy population, which is vital for economic productivity. Kenya government's financial commitment remains significantly low, averaging only 4.3% of Gross Domestic Product, well below the 15% target set by the Abuja Declaration. Adding to this challenge, external health aid, a key component of Kenya's health financing, has steadily declined since 1993. With rising population growth pressure, the low-income population suffers from high medication costs, out-of-pocket health expenses, and risks sliding or remaining in poverty due to increased healthcare costs and noncommunicable diseases. Data shows that about 36% of Kenyans live below the poverty line, with rural areas being more affected. Moreover, around one million Kenyans fall into poverty each year because of healthcare costs, worsened by the high prevalence of diseases such as cancer, HIV/AIDS, malaria, and tuberculosis. Empirical studies on Kenya have not substantially covered the link between persistent poverty rates and sectoral health expenditure. Additionally, most of the existing studies concentrate on out-of-pocket spending on healthcare. It is against this backdrop that this study sought to determine the impact of domestic, external, and private health expenditures on poverty rates in Kenya. The study was guided by the Keynesian theory of poverty and Grossman's theory of human capital. The study employed a causal research design and time series data from the World Bank, Kenya National Bureau of Statistics, and the Kenya Ministry of Health’s Annual Health Reports from 1990 to 2024. Autoregressive Distributed Lag Model was employed in the research to account for both short term dynamics in the economy and the long run impacts of the health sector expenditures on poverty. Error correction model and bound test was used to measure the spend of readjustment to normal in case of economic shocks hence ensure smooth the study the dynamic relationship between various health sector expenditures and poverty rates in Kenya. Cointegration was confirmed using the Bounds Test, leading to the reparameterization of the ARDL model into an Error Correction Model (ECM). The ECM captures both the short-run dynamics and the speed of adjustment toward the long-run equilibrium. According to the findings, government health expenditure demonstrated a statistically significant negative effect both in the long run and the short run. Private health expenditure had a statistically significant negative relationship with poverty rates, in the long run, while in the short run, it had a positive and significant effect. Conversely, external health expenditure showed a significant negative coefficient in the long run. The consistently strong and negative long-run coefficients for government health expenditure, external health expenditure, and private health expenditure unequivocally demonstrate that each component plays a significant role in reducing poverty rates. The research significantly provides insightful knowledge on the interplay of the health sub sectors in Kenya towards poverty alleviation. Both private sector, and government finds this research as a bedrock for reevaluation of health expenditures and need for preventive measure for both communicable and non-communicable diseases which has caused catastrophic spending that push individuals to poverty. Based on the findings, the main recommendation for Kenyan policymakers is to sustain and strategically increase public health expenditure, promote private firms, faith based organization and good partnership with international donors. This helps to reduce out of pocket spending. As well there is a need for true education on the principles of healthful living which is key input for productivity and efficiency in the economy.Item Effect of government’s human capital expenditure on poverty rates in Kenya(Chuka University, 2025) Musee, Amos MutambuPoverty remains a significant socio-economic challenge in Kenya, with approximately 36 percent of the population living below the international poverty line of $2.15 per day despite substantial government investments in human capital. This study utilized a causal research design to investigate the effect of government expenditure on education, health, and technology on poverty rates in Kenya from 1975 to 2024. Employing an Autoregressive Distributed Lag model, the study analyzed both short-run and long-run relationships, using secondary data from the Kenya National Bureau of Statistics and the World Development Indicators, with the Stata software used for the econometric analysis. The findings revealed a stable long-run cointegrating relationship among the variables as confirmed by the Autoregressive Distributed Lag Bounds Test. The error correction term was statistically significant at the 1 percent level, indicating a moderate speed of adjustment, with over half of short-run deviations in poverty levels corrected each year. The findings further revealed that government expenditure on education had a statistically significant poverty-reducing effect in both the long run and the short run, significant at the 1 percent and 10 percent levels respectively. Similarly, government expenditure on health demonstrated a strong and statistically significant povertyreducing impact in both the long run and the short run, each significant at the 1 percent level. In contrast, government expenditure on technology and innovation was statistically insignificant in both the short run and the long run. Overall, the model exhibited strong explanatory power with a high goodness of fit. These results underscore that increased investments in education and health significantly contribute to poverty reduction in Kenya, guiding targeted policy formulation for efficient resource allocation. Based on these findings, the study recommends enhancing both the scale and quality of government expenditures in education and health to sustain and deepen their poverty-reducing impact. Its further advocates for a strategic reorientation of technology expenditure to prioritize digital inclusivity and its integration into essential services like education and healthcare. The study also highlights areas for further study on optimizing human capital spending, particularly in the technology sector, to ensure inclusive effect on poverty alleviation.