Debt Servicing and Sectoral Economic Growth in Kenya

Brenda Molonko, Ambrose Jagongo, Job Omagwa

Abstract


The study objective was toestablish the effect of debt servicing on sectoral economic growth as well as the moderating effect of inflation on the relationship between debt servicing and sectorial economic growth in Kenya. The study employed Auto Regressive Distributed Lag model. Eleven sectors that receive government expenditure were analyzed while adopting positivist philosophy and a causal research design. The Study period covered the year 2006 to the 2015.Secondary data for the study period were collected from Statistical Abstracts of Kenya National Bureau of Statistics and Debt Servicing Reports from Kenya National Treasury. Panel Stationarity Test and Heterogeneity Test were conducted as preliminary tests whereas Hausman Test was carried out to choose efficient estimator from Pooled Mean Group, Dynamic Fixed Effects and Mean Group Estimators. The study established that in the long run, debt servicing has a significant effect on sectoral economic growth. In addition, the study established that inflation has a significant moderating effect on the relationship between debt servicing and Sectoral economic growth in the long run at the significance level of 0.05. The study concluded that debt servicing has a significant effect on sectoral economic growth in Kenya in the long run and no effect in the short run. Additionally, inflation enhances the influence of debt servicing on sectoral economic growth in the long run. The study further confirms that Kenya is not facing a debt overhang problem. The study recommends that if the government must borrow, the loans should be concessional in nature with long term repayment periods. The government should ensure that reasonable levels of inflation are achieved.


Full Text:

PDF


DOI: https://doi.org/10.11114/aef.v5i3.3244

Refbacks

  • There are currently no refbacks.


Paper Submission E-mail: aef@redfame.com

Applied Economics and Finance    ISSN 2332-7294 (Print)   ISSN 2332-7308 (Online)

Copyright © Redfame Publishing Inc.

To make sure that you can receive messages from us, please add the 'redfame.com' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders. If you have any questions, please contact: aef@redfame.com

 

-------------------------------------------------------------------------------------------------------------------------------------------------------------