Impact of Government Expenditure on Private Investment in Kenya

Abstract

Kenya’s investment by private individuals and firms has not been sustainable since the country attained independence. This rather sorry state of affairs has raised concern to the government since investment is considered a key component propelling economic growth and development. Government of Kenya has designed many policies aimed at encouraging private investment but little fruits have been borne. This study aimed at finding out the repercussions of government expenditure on private investment in Kenya. The study adopted VAR technique using time series data for the period 1963 – 2012, The research findings indicated that both recurrent and development expenditures enhanced private investment. The reforms on public expenditure were found to deter activities of private investors. The study concluded that there was need for government to reallocate funds towards projects that are valuable to the private sector and eschew from those that contend with or crowd it out. The study recommended that government should undertake fiscal reforms in the areas that promote private investment. Such reforms were expected to encourage investors because that was a sign of government commitment to prudent financial management.