Abstract:
Purpose: Aggregate private investment is key in stimulating
economic growth and development of a country such as
Kenya. However, the sector seems to be influenced by
changes in macroeconomic variables. Therefore, the study
aimed at determining the effect of change in macroeconomic
variables on aggregate private investment growth in Kenya.
It focused on the effect of changes in interest, inflation and
exchange rates on aggregate private investment growth in
Kenya as the key objectives of the study.
Methodology: The study adopted the quantitative causal
research design. Secondary data obtained from the World
Bank was used, with a time scope of between 1972 and 2023.
Data was analyzed through exploratory and inferential
analyses via R software. Cointegration analysis was carried
out through the Johansen test and both the Maximum
Eigenvalue and Trace tests indicated the absence of
cointegration relationships since the test statistic values were
less than the critical values at ∝ = 0.05. Thus, ARDL
estimation technique was adopted.
Findings: The study’s findings indicated that change in
interest rate had a statistically significant negative effect on
aggregate private investment growth in Kenya (P-value <
0.05). Furthermore, the study revealed that such effect
wasn’t instant but was translated after three years. The study
further found that change in inflation rate had a statistically
significant positive effect on Kenya’s aggregate private
investment growth (P-value < 0.05). Likewise, such effect
was felt on aggregate private investment after eight years.
Finally, the study showed that change in exchange rate did
not have any significant effect on aggregate private
investment growth in Kenya (P-value > 0.05).
Unique Contribution to Theory, Practice and Policy: The
study recommends the need to manage the changes in
macroeconomic variables including inflation and interest
rates within their target range as prescribed by the “monetary
policy” so as to ensure macroeconomic stability and boost
aggregate private investment growth in Kenya
