The Effect of Government Expenditure on Economic Growth in Kenya

Abstract

The objective of this study was to determine the effect of government expenditure on economic growth in Kenya. The discourses of government spending and economic growth lead to varied conceptual evidence that is far from conclusive. For this study, government expenditure was the independent variable, and economic growth represents the dependent variable. Inflation and exchange rates operated as the control variables. The research employed Keynesian theory, Peacock and Wiseman's theory, Wagner's theory, and Musgrave's Theory of Public Expenditure to underpin the study. The study used a causal research design. Casualty was tested by determining the significance of the outcome under other conditions. Secondary data sources from original publications from KNBS (Kenya National Bureau of Statistics), Central Bank of Kenya publications, and World Bank formed the information for the entire study. To ensure that the study does not violate panel data, various diagnostic tests (multi-collinearity autocorrelation, Homoscedasticity, and normality) were performed to ensure that the study did not violate the panel. The study found that all of the variables have an impact on GDP, both individually and in combination. Government spending has a positive impact on GDP growth. The study concludes that there exists a positive relationship between the Trade-Weighted index and GDP growth levels. Moreover, combined variables strengthen the correlations but the difference is minor. Inflation as a predictor of economic growth had no statistical significance. The study recommends that the government use more development expenditure to maintain considerable economic growth. Additionally, the study recommends a moderate intervention by the CBK to maintain a healthy balance between local and international currency.

Keywords: Government expenditure, Economic growth