Does Public Debt affect Private Investment in Kenya? ARDL Approach

Pollyne Mbithe Mutunga
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Pollyne Mbithe Mutunga: Machakos University, Machakos, Kenya

International Journal of Research and Innovation in Social Science, 2020, vol. 4, issue 7, 257-261

Abstract: Private sector investment plays a critical role towards economic growth and development. Private sector provides employment opportunities to almost 80 percent of Kenyan, pays revenue to the government in form of taxes and fees, and accounts for 50 percent of the GDP. Since 2013, Kenya’s appetite for public debt has growth rapidly and this has elicited public debate on the effect of such debts on private investment. However, literature on this issue remains scanty and inconclusive. The study adopts Autoregressive Distributed Lag Model to respond to the question, “How does Kenya’s public debt affect private investment? The study employed time series data covering 1980-2019. The finds that domestic debt has negative effect on private investment only in the short-run. Similar findings are observed with inflation. In addition, external debt crowds out private investment in the long-run and finally, debt service has adverse effect on private investment in both short and long-run. The study recommends better debt management practices as a remedy to the negative effects.

Date: 2020
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