Explaining the Relationship between Public Expenditure and Economic Growth in Kenya using Vector Error Correction Model (VECM)

Christine Simiyu ()
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Christine Simiyu: KCA UNIVERSITY

No 1003212, Proceedings of International Academic Conferences from International Institute of Social and Economic Sciences

Abstract: The rapid growth in public expenditure in Kenya since independence has caused concern among policy makers on its implication on economic growth. The main aim of this study therefore was to explain the relationship between economic growth and public expenditure on Health, Education, Military and Infrastructure in Kenya. The study used a time series data collected between 1963 - 2012. Johansen Cointegration Test and Vector Error Correction Model (VECM) was applied on the time series data to estimate the short-run and long-run relationships between public expenditures and economic growth in Kenya. The results suggests that public expenditure components and economic growth co-move towards a long run equilibrium with a speed of adjustments of approximately 3.6% after short run fluctuations in the equilibrium. Furthermore, the results show no casual relationship between public expenditure and economic growth in Kenya. However, there exist a unidirectional causation between Military and Health expenditures - Military expenditures "Granger Cause" Health expenditures. Hence, a change in Military expenditures cause a change in Health expenditures. These findings suggests that the Government of Kenya switch military expenditures for health expenses in Kenya, but not vice versa.

Keywords: Vector Error Correction Model (VECM); Granger Causation; Public expenditures; Economic Growth; Kenya. (search for similar items in EconPapers)
JEL-codes: H50 O47 O55 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2015-05
New Economics Papers: this item is included in nep-fdg and nep-gro
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in Proceedings of the Proceedings of the 15th International Academic Conference, Rome, May 2015, pages 1018-1038

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Persistent link: https://EconPapers.repec.org/RePEc:sek:iacpro:1003212

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