Public Borrowing And Private Investment In Kenya

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School of Business and Economics, Daystar University


ABSTRACT The purpose of this research was to examine public borrowing and private investment in Kenya, as there remains a research gap between domestic and foreign borrowing. The research was guided by three objectives: To assess the trends and patterns of domestic and foreign public borrowing in Kenya; to evaluate private investment in Kenya, and to determine the effect of public borrowing on private investment in Kenya. It focused on data from 1999 to 2021 with an emphasis on domestic borrowing, foreign borrowing, and Gross Fixed Capital Formation (GFCF). The Ricardian equivalence, functional finance, and Keynesian theories were used to guide the study. The target population consisted of all the years from 1964 to 2021 from which a data sample included 1999 to 2021. Correlational research design was used, with secondary data that descriptive and inferential statistics were obtained using the student version of Eviews12. The findings revealed a significant increase in public borrowing and the growth of average private investment contribution to Kenya’s GDP of 20.2%. Public borrowing was found to have a negative significant impact on private investment, with both short-term and long-term effects. Other than exchange rate, inflation and interest rate had negative impact on private investment although the impact was insignificant. In conclusion, the findings were aligned with the Ricardian Equivalence Theory by providing empirical support for the idea that public borrowing negatively affects private investment The study recommended that policymakers should implement measures that attract foreign investment, reducing dependence on domestic borrowing. Policies aimed at stabilizing key economic indicators to foster a conducive investment climate control should be promoted. Furthermore, private investors should diversify their investment strategies to mitigate the negative effects of public borrowing.


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Private Investment, Kenya


George O. R,. (2023, Thesis). Public Borrowing And Private Investment In Kenya. School of Business and Economics, Daystar University