Influence of infrastructure expenditure on gross domestic product growth in Kenya

Abstract

Government expenditure is a critical tool which governments usually use to bring about equitable distribution of income and wealth and hence, create stability in prices, manage inflation, create employment and spur growth. Kenya government spends substantial amounts of money annually on physical infrastructure, education, health care, economic services, public order and national security, defense and general administration. Therefore, the issue of which government expenditure can foster permanent movements in economic growth becomes important. The main objective is to determine the influence infrastructure expenditure on gross domestic product growth in Kenya. The study is informed by Solow growth theory. Empirical methods are employed to analyze the influence infrastructure expenditure on gross domestic product growth in the 47 counties of Kenya. The survey and evaluation program frame was adopted, and so was an inductive ex post facto cross sectional quantitative survey design. Secondary panel data were collected from National Treasury. Data for the period 2013-2017 were used to run a multiple regression using EViews software. This study has adopted the basic growth accounting and used a production function model in which the rate of economic growth is a function of labour, capital accumulation and factor productivity. The study further adopted panel data approach to identify the parameters of concern and it covers a period of 5 years. In analyzing data, the study has employed Hausman test which helps to choose fixed effects over random effects. The significance of a regression coefficient is determined by use of the t-test statistic and the significance tests are carried out at 95% confidence level or at the 5% level of significance. The study has established that county government infrastructure expenditure is inversely related to, and important in influencing, economic growth in Kenya.