The Relationship Between Public Investment To GDP Ratio And External Debt Stocks In Kenya

Journal Title: International Journal Of Management And Economics Invention - Year 2016, Vol 2, Issue 7

Abstract

Debt is a two-edged sword. External borrowing for productive investment is associated with macroeconomics stability, increased domestic savings, improved welfare and enhanced debt repayment ability; while over accumulation of debt is associated with increased repayment and debt-service costs, depressed domestic investment, crowding out of private investment and increased vulnerability to debt crisis. The paper sought to establish the relationship between public investment to GDP ratio and external debt in Kenya over the period of 1972-2012. The study used time-series data for public investment, GDP, and external debt from IMF International Financial Statistics database. All data was evaluated, cross-checked, compared and critically analyzed. To ensure that the data does not violate the assumptions of classical linear regression model (CLRM) and test for stationarity, the study tested for unit tests using Augmented Dickey-Fuller (ADF). To test for the verifiability of the estimated long run model, additional diagnostic tests, notably: heteroskedasticity, autoregressive conditional heteroskedasticity (ARCH), autocorrelation and normality, were carried out before regression was used to determine the relationship between external debt and inflation. The gauge the relationship between the external debt and growth in Kenya, a simple open macroeconomic debt growth model will be applied. Regression analysis of Ordinary Least Squares (OLS) will be used to determine the relationship between public investment to GDP ratio and external debt over the 1972 and 2012 period in Kenya. The correlation findings indicated a Spearman's correlation coefficient of -0.5618 with a P value of 0.0001, implying a negative and significant correlation. The regression results show an R square of 0.0067 indicating that 0.7 percent of variations in external debt are explained by variations in total investment/GDP ratio, F statistic of 0.26 and a p value of 0.1828. The study recommends sustaining lower inflation rates through tight fiscal and monetary policies, financing of budget deficit from noninflationary sources, implementation of price stabilization program by subsiding basic food items, and effectively managing external debt.

Authors and Affiliations

Fredrick T. Mweni

Keywords

Related Articles

An Evaluation of the Effectiveness of Internal Audit Control in Ensuring Public and Private Sector Integrity and Accountability (A Case of Ghana Agric. Development Bank and the Fan Milk Industry-Ghana)

Fostering integrity and combating fraud and corruption in the public and private sector is a challenge for government and public administrations, particularly in times of economic crisis. To succeed, executives in public...

Innovation In Monitoring Public Transport System In Real-Time

The paper aims at developing a passenger counting system application using key information collected through the means of IR Sensors and RFID tags/readers, which in turn, will enhance the efficiency of the entire transpo...

The Moderating Effect of Situational Factors and the Key Factors Influencing Mobile Banking Adoption

Technology is playing a great role in today’s daily activities, making the life easier and human transactions faster. Business entities widely utilized the technologies for service delivery, efficiency, customer satisfac...

The Effects Of Government Spending On Private Investments And Economic Growth In Cameroon

The main objective of this study is to analyze the effects of government spending on private investments and economic growth in Cameroon. On this issue, a majority of empirical studies as well theoretical ones highlight...

Enhancing proactive work behaviour amongst lecturers in public universities in Uganda

This study was carried out with an intention of establishing the possibility of enhancing proactive work behavior amongst lecturers in public universities in Uganda. The aspects of job autonomy, organizational management...

Download PDF file
  • EP ID EP211497
  • DOI -
  • Views 125
  • Downloads 0

How To Cite

Fredrick T. Mweni (2016). The Relationship Between Public Investment To GDP Ratio And External Debt Stocks In Kenya. International Journal Of Management And Economics Invention, 2(7), 671-680. https://www.europub.co.uk/articles/-A-211497