Establishing the Relationship between Public and Private Investment in Kenya

Abstract

This study undertakes to establish the relationship that exists between public investment and private investment in Kenya during the period of 1971-2011. The study adopts the flexible accelerator model using the time series data for the period in consideration. Variables in the model are real GDP, inflation, interest rate, domestic credit, exchange rate, exports and external debt. The data for these variables was collected from various sources including The Central Bank of Kenya, Economic Surveys, Statistical Abstract and International Financial statistics. Using econometric techniques, the empirical results show domestic credit, real gross domestic product and exports have positive impact on private investment both in the long run and short run while exchange rate, external debt had both short run and long run negative impact on private investment. This study recommend the use of efficient and modern technologies in the manufacturing and agricultural sector to increase their productivity, more domestic credit to the private sector, debt relief among other policies are suggested to boost private investment in Kenya.