Government Capital Spending and Financing and Its Impact on Private Investment In Kenya: 1964-2006

Abstract

This study examined the relationship between public investment and private investment financing in Kenya from 1964 to 2006, using an error correction framework and data. The study showed that investment in agriculture had a significant positive effect while domestic debt had a significant negative impact. Political risk, real exchange rate, external debt and tax insignificantly had negative impact. Investment in infrastructure had insignificant positive impact. These findings revealed important policy implications that investment in agriculture crowds-in private investment while domestic debt crowds it out significantly.

Keywords: Public expenditure, Tax and debt financing, Private investment, Error correction.