Abstract:
The Kenya Vision 2030 aims at achieving a 10 percent per annum growth rate
in the economy. Investments have been identified as a major channel through
which this objective can be met. The government has undertaken various
public investments to fuel economic growth. However, for this to be even more
effective, private investments have to be taken into consideration. The
government has taken various measures such as relying more on external debt
to avoid crowding out private investments and consequently promote economic
growth. Despite these efforts, private investments and economic growth have
remained low. This study aimed at finding out the effect public debt on the
level of private investment and economic growth in Kenya. The study used
time series data from 1980 to 2013. Granger causality test was used to
determine the direction of causality between public debt and private
investments and also between public debt and economic growth. Ordinary least
squares estimation was used in the estimation of the model. Granger causality
tests also show the presence of unidirectional causality from debt to private
investments and GDP growth. Debt was found to have a negative effect on
private investments and a positive effect on economic growth. This suggests
that debt plays a huge role in determining the level of private investments and
also the level of economic growth.
