THE EFFECT OF PUBLIC EXPENDITURE ON ECONOMIC GROWTH: THE CASE OF KENYA .......................................................................................................

Abstract

World-wide governments including the Kenyan government incur expenditures to pursue a variety of objectives, one of which is economic growth. This study sought to examine the relationship between public expenditure and economic growth in Kenya using a time series data covering the period 1980-2010. Four key sectors were selected for this study, namely: health, education, agriculture and infrastructure. To understand the nature of the association between the economic growth as dependent variable and the public spending as the explanatory variable, the study made use of correlational research design. However, in order to avoid spurious estimates on the part of the time series, unit root test was conducted on each variable data to test for stationarity using Augmented Dickey-Fuller (ADF) technique, after which cointegration test was conducted. Error correction model was later estimated to determine the relationship dynamics. The study findings revealed that public spending on agriculture and infrastructure promote economic growth where as the public expenditure on health and education were found to be negatively related to economic grow.