The Effect of National Public Debt on Economic Growth in Kenya
Keywords:
Public debt, sustainable debt, and economic development
Abstract
Kenya being a lower middle income country compliments tax revenue with government borrowing to finance its national development plans. In an attempt to add to available domestic resources, successive governments have relied on both domestic and external debt to finance the country’s budget. In light of the growing concerns over Kenya’s national public debt sustainability and its potential effect on the economy, this study aimed at analyzing the effect of national public debt on economic growth in Kenya. Specifically, the study sught to establish the effect of domestic debt and external debt on Kenya’s economic growth. Gross Domestic Product was used as the proxy for economic growth while domestic debt, external debt, inflation rate, exchange rate, capital stock and labor force are the explanatory variables. The study used time series data for the period 990 to 20 9. The data was extracted from the World development indicators and this data was harmonized with data extracted from the data bases of the Kenya National Bureau of Statistics. The data was analyzed through the Ordinary Least Square (OLS) regression technique. The findings indicated that domestic debt had an insignificant negative effect on Kenyan economy while external debt has insignificant positive effect. The study concluded that internal debt has deleterious while external debt has positive effect on growth.
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References
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8. Antony, J., & Broer, D. P. (2015). Euro area financial shocks and economic activity in The Netherlands. Empirica, 42, 571-595.
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11. Bal, D.P., & Rath, B.N. (2014). Public debt and economic growth in India: A reassessment. Economic Analysis and Policy, 44(3), 292-300.
12. Balcerzak, A.P., & Rogalska, E. (2014). Crowding Out and Crowding In within Keynesian Framework. Do We Need Any New Empirical Research Concerning Them? Economics & Sociology, 7(2), 80-93.
13. Bilan, I. (2016). Overview of the Main Theories on the Economic Effects of Public Indebtedness. In European Integration-Realities and Perspectives Proceedings (pp. 356-362). Editura Universitară Danubius.
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17. Cholifihani, M. (2008). A co-integration analysis of public debt service and GDP in Indonesia. Journal of Management and social sciences, 4(2), 68-81.
18. Chowdhury, A. Y., Hamid, M. K., & Akhi, R. A. (2019). Impact of Macroeconomic Variables on Economic Growth: Bangladesh Perspective. Information Management and Computer Science (IMCS), 2(2), 19-22.
19. Chudik, A., Mohaddes, K., Pesaran, M. H., & Raissi, M. (2017). Is there a debt-threshold effect on output growth? Review of Economics and Statistics, 99(1), 135-150.
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21. Egbetunde, T. (2012). Public debt and economic growth in Nigeria: Evidence from granger causality. American Journal of Economics, 2(6), 101-106.
22. Égert, B. (2015). Public debt, economic growth, and nonlinear effects: Myth or reality? Journal of Macroeconomics, 43(1), 226-238.
23. Fincke, B., & Greiner, A. (2015). Public debt and economic growth in emerging market economies. South African Journal of Economics, 83(3), 357-370.
24. Gicheru, G., & Nasieku, T. (2016). Impact of public debt on Kenya’s economic growth. International Journal of Economic and Business Review, 3(2), 1-8.
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26. Ibi, E. E., & Aganyi, A. (2015). Impacts of external debt on economic growth in Nigeria: a VAR approach. Journal of Business Management and Administration, 3(1), 1-5.
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28. Jibran, K., Ali, A., Hayat, U., & Iqbal, A. (2016). Public debt and economic growth in Pakistan: A reassessment. Pakistan Business Review, 18(2), 307-324.
29. Joy, J., & Panda, P. K. (2019). The pattern of public debt and debt overhang among BRICS nations: An empirical analysis. Journal of Financial Economic Policy, 7(1), 43 - 49.
30. Kadiu, F. (2015). Public debt and Economic Growth, Case of Albania. Balkan Journal of Interdisciplinary Research, 175.
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32. Kibui, P. (2009). Impact of external debt on public investment and economic growth in Kenya (1970-2007). Unpublished MBA Project, University of Nairobi.
33. Kumar, M.S., & Woo, J. (2010). Impact of high public debt on long run economic growth for a panel of advanced economies (1970-2007). Economics and Management, 14(3), 71 - 79.
34. Lartey, E. Y., Musah, A., Okyere, B., & Yusif, N. (2018). Public debt and economic growth: Evidence from Africa. International Journal of Economics and Financial Issues, 8(6), 35.
35. Lee, S.P., & Ng, Y.L. (2015). Public debt and economic growth in Malaysia. Asian Economic and Financial Review, 5(1), 119-126.
36. Maana, I., Owino, R., & Mutai, N. (2008). Domestic Debt and its Impact on the Economy-The case of Kenya. 13th Annual African Econometric Society Conference. Pretoria, South Africa.
37. Maghyereh, A., Omet, G., & Kalaji, F. (2005). External Debt and Economic Growth in Jordan: The Threshold Effect. International Economics, 56(3), 337- 355.
38. Makau, J., Njuru, S., & Ocharo, K. N. (2018). Fiscal policy and public debt in Kenya.
39. Moussa, T.A, & Shawawreh, A.M. (2017). The Impact of Public Debt on the Economic Growth of Jordan: An Empirical Study (2000 - 2015). Accounting and Finance Research, 6(2), 114-120.
40. Mupunga, N., & Le Roux, P. (2016). Analysing the theoretical and empirical foundations of public debt dynamics in Zimbabwe. Studies in Economics and Econometrics, 40(1), 95-118.
41. Mwakalila, E. (2020). Crowding Out of Private Sector in Tanzania: Government Expenditure, Domestic Borrowing, and Lending Rates. Emerging Economy Studies, 6(1), 123-135.
42. Mwaniki, G. W. (2016). Effect of public debt on the gross domestic product in Kenya. Journal of Economics and Finance, 7(6), 59-72.
43. Ndieupa, H.N. (2018). How Does Public Debt Affect Economic Growth? Further Evidence from CEMAC Zone. Asian Research Journal of Arts & Social Sciences, 5(1), 1-8.
44. Ngugi, P. M. (2019). Leasing as Major Financing Tool in Small and Medium Enterprises in Embu County.
45. Omitogun, O. (2018). Investigating the Crowding Out Effect of Government Expenditure on Private Investment. Journal of Competitiveness, 10(4), 136-150.
46. Ongeri, B.O. (2021). Issues of public debt management in countries - A Kenyan experience. International Journal of Scientific Research and Innovative Technology, 8(2), 17-30.
47. Ostry, M. J. D., Ghosh, M. A. R., & Espinoza, R. A. (2015). When should public debt be reduced? New York: International Monetary Fund.
48. Owusu-Nantwi, V., & Erickson, C. (2016). Public debt and economic growth in Ghana. African Development Review, 28(1), 116–126.
49. Pegkas, P. (2018). The effect of government debt and other determinants on economic growth: The Greek experience. Economies, 6(1), 10-19.
50. Putunoi, G.K., & Mutuku, C.M. (2013). Domestic debt and economic growth relationship in Kenya. Current Research Journal of Economic Theory, 5(1), 1 - 10.
51. Qureshi, M.N., & Ali, K. (2010). Public debt and economic growth: Evidence from Pakistan. International Research Journal of Finance and Economics, 5(3), 100-108.
52. Rabia, A., & Kamran, M. (2012). Impact of domestic and external debt on the economic growth of Pakistan. World Applied Sciences Journal, 20(1), 120-129.
53. Reinhart, C., & Rogoff, K. (2010). Growth in a Time of Debt. NBER Working Paper, No. 15639.
54. Saifuddin, M. (2016). Public debt and economic growth: Evidence from Bangladesh. Global Journal of Management and Business Research, 8(1), 36-43.
55. Shabbir, S. (2009). Does External Debt Affect Economic Growth: Evidence from Developing Countries. Retrieved September 11, 2015.
56. Sheikh, M.R., Faridi, M.Z., & Tariq, K. (2010). Domestic debt and economic growth in Pakistan: An empirical analysis. Pakistan Journal of Social Sciences (PJSS), 30(2), 373-387.
57. Tchereni, B.M., Sekhampu, T.J., & Ndovi, R.F. (2013). The impact of foreign debt on economic growth in Malawi. African Development Review, 25(1), 85 - 90.
58. Teles, V. K., & Mussolini, C. C. (2014). Public debt and the limits of fiscal policy to increase economic growth. European Economic Review, 66, 1-15.
59. Tsoulfidis, L. (2017). Classical economists and public debt. International Review of Economics, 54(1), 1-12.
60. Umaru, A., Hamidu, A., & Musa, S. (2013). External debt and domestic debt impact on the growth of the Nigerian economy. International Journal of Educational Research, 1(2), 70-85.
61. Wanjuki, N. (2016). Effect of Public Debt on Economic Growth in Kenya. Nairobi: Kenyatta University Publications.
62. Woo, J., & Kumar, M. S. (2015). Public debt and growth. Economica, 82(328), 705-739.
63. Yusuf, S., & Said, A. O. (2018). Public Debt and Economic Growth: Evidence from Tanzania. Journal of Economics, Management and Trade, 21(1), 1-12.
2. Adagala-Ombuya, N. (2017). INFLUENCE OF PART–TIME LECTURING ON RESEARCH AMONG UNIVERSITIES’ACADEMIC STAFF IN KENYA. European Journal of Education Studies.
3. Adofu, I., & Abula, M. (2010). Domestic debt and the Nigerian economy. Current Research Journal of Economic Theory, 2(1), 22-26.
4. Ahlborn, M., & Schweickert, R. (2018). Public debt and economic growth – economic systems matter. International Economics and Economic Policy, 15(2), 373-403.
5. Ajayi, L.B., & Oke, M.O. (2012). Effect of external debt on economic growth and development of Nigeria. International Journal of Business and Social Science, 3(12), 297-304.
6. Ali. R., & Mustafa, U. (2010). External Debt Accumulation and Its Impact on Economic Growth in Pakistan. The Pakistan Development Review 51:4 PartII, pp. 79–96.
7. Al-Zeaud, H.A. (2014). Public debt and economic growth: An empirical assessment. European Scientific Journal, 10(4), 55-62.
8. Antony, J., & Broer, D. P. (2015). Euro area financial shocks and economic activity in The Netherlands. Empirica, 42, 571-595.
9. Assenmacher, K., & Krogstrup, S. (2018). Monetary policy with negative interest rates: Decoupling cash from electronic money. International Monetary Fund.
10. Aybarç, S. (2019). Theory of Public Debt and Current Reflections. In Public Economics and Finance. IntechOpen.
11. Bal, D.P., & Rath, B.N. (2014). Public debt and economic growth in India: A reassessment. Economic Analysis and Policy, 44(3), 292-300.
12. Balcerzak, A.P., & Rogalska, E. (2014). Crowding Out and Crowding In within Keynesian Framework. Do We Need Any New Empirical Research Concerning Them? Economics & Sociology, 7(2), 80-93.
13. Bilan, I. (2016). Overview of the Main Theories on the Economic Effects of Public Indebtedness. In European Integration-Realities and Perspectives Proceedings (pp. 356-362). Editura Universitară Danubius.
14. CBK. (2018). Financial Access Partnership. FAB Survey.
15. Checherita, C., & Rother, P. (2010). The impact of high and growing government debt on economic growth: An empirical investigation for the Euro Area. IMF Working Paper No. 10/1237
16. Chirwa, T. G., & Odhiambo, N. M. (2016). Macroeconomic determinants of economic growth: A review of international literature. Southeast European Journal of Economics and Business, 11(2), 33-47.
17. Cholifihani, M. (2008). A co-integration analysis of public debt service and GDP in Indonesia. Journal of Management and social sciences, 4(2), 68-81.
18. Chowdhury, A. Y., Hamid, M. K., & Akhi, R. A. (2019). Impact of Macroeconomic Variables on Economic Growth: Bangladesh Perspective. Information Management and Computer Science (IMCS), 2(2), 19-22.
19. Chudik, A., Mohaddes, K., Pesaran, M. H., & Raissi, M. (2017). Is there a debt-threshold effect on output growth? Review of Economics and Statistics, 99(1), 135-150.
20. Churchman, N. (2001). Ricardo and Modern Public Debt Theory. In David Ricardo on Public Debt (pp. 111-121). London: Palgrave Macmillan.
21. Egbetunde, T. (2012). Public debt and economic growth in Nigeria: Evidence from granger causality. American Journal of Economics, 2(6), 101-106.
22. Égert, B. (2015). Public debt, economic growth, and nonlinear effects: Myth or reality? Journal of Macroeconomics, 43(1), 226-238.
23. Fincke, B., & Greiner, A. (2015). Public debt and economic growth in emerging market economies. South African Journal of Economics, 83(3), 357-370.
24. Gicheru, G., & Nasieku, T. (2016). Impact of public debt on Kenya’s economic growth. International Journal of Economic and Business Review, 3(2), 1-8.
25. Hussain, M.E., Haque, M., & Igwike, R. (2015). Relationship between economic growth and debt: An empirical analysis for Sub-Saharan Africa. Journal of Economics and Political Economy, 2(2), 262-276.
26. Ibi, E. E., & Aganyi, A. (2015). Impacts of external debt on economic growth in Nigeria: a VAR approach. Journal of Business Management and Administration, 3(1), 1-5.
27. IEA, I. (2017). Energy technology perspectives 2017. Catalysing Energy Technology Transformations.
28. Jibran, K., Ali, A., Hayat, U., & Iqbal, A. (2016). Public debt and economic growth in Pakistan: A reassessment. Pakistan Business Review, 18(2), 307-324.
29. Joy, J., & Panda, P. K. (2019). The pattern of public debt and debt overhang among BRICS nations: An empirical analysis. Journal of Financial Economic Policy, 7(1), 43 - 49.
30. Kadiu, F. (2015). Public debt and Economic Growth, Case of Albania. Balkan Journal of Interdisciplinary Research, 175.
31. Kandil, M. (2017). Crowding out or crowding in? Correlations of spending components within and across countries. Research in International Business and Finance, 42, 1254-1273.
32. Kibui, P. (2009). Impact of external debt on public investment and economic growth in Kenya (1970-2007). Unpublished MBA Project, University of Nairobi.
33. Kumar, M.S., & Woo, J. (2010). Impact of high public debt on long run economic growth for a panel of advanced economies (1970-2007). Economics and Management, 14(3), 71 - 79.
34. Lartey, E. Y., Musah, A., Okyere, B., & Yusif, N. (2018). Public debt and economic growth: Evidence from Africa. International Journal of Economics and Financial Issues, 8(6), 35.
35. Lee, S.P., & Ng, Y.L. (2015). Public debt and economic growth in Malaysia. Asian Economic and Financial Review, 5(1), 119-126.
36. Maana, I., Owino, R., & Mutai, N. (2008). Domestic Debt and its Impact on the Economy-The case of Kenya. 13th Annual African Econometric Society Conference. Pretoria, South Africa.
37. Maghyereh, A., Omet, G., & Kalaji, F. (2005). External Debt and Economic Growth in Jordan: The Threshold Effect. International Economics, 56(3), 337- 355.
38. Makau, J., Njuru, S., & Ocharo, K. N. (2018). Fiscal policy and public debt in Kenya.
39. Moussa, T.A, & Shawawreh, A.M. (2017). The Impact of Public Debt on the Economic Growth of Jordan: An Empirical Study (2000 - 2015). Accounting and Finance Research, 6(2), 114-120.
40. Mupunga, N., & Le Roux, P. (2016). Analysing the theoretical and empirical foundations of public debt dynamics in Zimbabwe. Studies in Economics and Econometrics, 40(1), 95-118.
41. Mwakalila, E. (2020). Crowding Out of Private Sector in Tanzania: Government Expenditure, Domestic Borrowing, and Lending Rates. Emerging Economy Studies, 6(1), 123-135.
42. Mwaniki, G. W. (2016). Effect of public debt on the gross domestic product in Kenya. Journal of Economics and Finance, 7(6), 59-72.
43. Ndieupa, H.N. (2018). How Does Public Debt Affect Economic Growth? Further Evidence from CEMAC Zone. Asian Research Journal of Arts & Social Sciences, 5(1), 1-8.
44. Ngugi, P. M. (2019). Leasing as Major Financing Tool in Small and Medium Enterprises in Embu County.
45. Omitogun, O. (2018). Investigating the Crowding Out Effect of Government Expenditure on Private Investment. Journal of Competitiveness, 10(4), 136-150.
46. Ongeri, B.O. (2021). Issues of public debt management in countries - A Kenyan experience. International Journal of Scientific Research and Innovative Technology, 8(2), 17-30.
47. Ostry, M. J. D., Ghosh, M. A. R., & Espinoza, R. A. (2015). When should public debt be reduced? New York: International Monetary Fund.
48. Owusu-Nantwi, V., & Erickson, C. (2016). Public debt and economic growth in Ghana. African Development Review, 28(1), 116–126.
49. Pegkas, P. (2018). The effect of government debt and other determinants on economic growth: The Greek experience. Economies, 6(1), 10-19.
50. Putunoi, G.K., & Mutuku, C.M. (2013). Domestic debt and economic growth relationship in Kenya. Current Research Journal of Economic Theory, 5(1), 1 - 10.
51. Qureshi, M.N., & Ali, K. (2010). Public debt and economic growth: Evidence from Pakistan. International Research Journal of Finance and Economics, 5(3), 100-108.
52. Rabia, A., & Kamran, M. (2012). Impact of domestic and external debt on the economic growth of Pakistan. World Applied Sciences Journal, 20(1), 120-129.
53. Reinhart, C., & Rogoff, K. (2010). Growth in a Time of Debt. NBER Working Paper, No. 15639.
54. Saifuddin, M. (2016). Public debt and economic growth: Evidence from Bangladesh. Global Journal of Management and Business Research, 8(1), 36-43.
55. Shabbir, S. (2009). Does External Debt Affect Economic Growth: Evidence from Developing Countries. Retrieved September 11, 2015.
56. Sheikh, M.R., Faridi, M.Z., & Tariq, K. (2010). Domestic debt and economic growth in Pakistan: An empirical analysis. Pakistan Journal of Social Sciences (PJSS), 30(2), 373-387.
57. Tchereni, B.M., Sekhampu, T.J., & Ndovi, R.F. (2013). The impact of foreign debt on economic growth in Malawi. African Development Review, 25(1), 85 - 90.
58. Teles, V. K., & Mussolini, C. C. (2014). Public debt and the limits of fiscal policy to increase economic growth. European Economic Review, 66, 1-15.
59. Tsoulfidis, L. (2017). Classical economists and public debt. International Review of Economics, 54(1), 1-12.
60. Umaru, A., Hamidu, A., & Musa, S. (2013). External debt and domestic debt impact on the growth of the Nigerian economy. International Journal of Educational Research, 1(2), 70-85.
61. Wanjuki, N. (2016). Effect of Public Debt on Economic Growth in Kenya. Nairobi: Kenyatta University Publications.
62. Woo, J., & Kumar, M. S. (2015). Public debt and growth. Economica, 82(328), 705-739.
63. Yusuf, S., & Said, A. O. (2018). Public Debt and Economic Growth: Evidence from Tanzania. Journal of Economics, Management and Trade, 21(1), 1-12.
Published
2023-03-31
How to Cite
Hassan, M. A., Ongeri, B. O., & Ndolo, D. K. (2023). The Effect of National Public Debt on Economic Growth in Kenya. European Scientific Journal, ESJ, 19(7), 79. https://doi.org/10.19044/esj.2023.v19n7p79
Section
ESJ Social Sciences
Copyright (c) 2023 Mohamedamin Ahmed Hassan, B. Onkoba Ongeri, David Katuta Ndolo
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
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