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Debt Servicing and Sectoral Economic Growth in Kenya

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  • Brenda Molonko
  • Ambrose Jagongo
  • Job Omagwa

Abstract

The study objective was toestablish the effect of debt servicing on sectoral economic growth as well as the moderating effect of inflation on the relationship between debt servicing and sectorial economic growth in Kenya. The study employed Auto Regressive Distributed Lag model. Eleven sectors that receive government expenditure were analyzed while adopting positivist philosophy and a causal research design. The Study period covered the year 2006 to the 2015.Secondary data for the study period were collected from Statistical Abstracts of Kenya National Bureau of Statistics and Debt Servicing Reports from Kenya National Treasury. Panel Stationarity Test and Heterogeneity Test were conducted as preliminary tests whereas Hausman Test was carried out to choose efficient estimator from Pooled Mean Group, Dynamic Fixed Effects and Mean Group Estimators. The study established that in the long run, debt servicing has a significant effect on sectoral economic growth. In addition, the study established that inflation has a significant moderating effect on the relationship between debt servicing and Sectoral economic growth in the long run at the significance level of 0.05. The study concluded that debt servicing has a significant effect on sectoral economic growth in Kenya in the long run and no effect in the short run. Additionally, inflation enhances the influence of debt servicing on sectoral economic growth in the long run. The study further confirms that Kenya is not facing a debt overhang problem. The study recommends that if the government must borrow, the loans should be concessional in nature with long term repayment periods. The government should ensure that reasonable levels of inflation are achieved.

Suggested Citation

  • Brenda Molonko & Ambrose Jagongo & Job Omagwa, 2018. "Debt Servicing and Sectoral Economic Growth in Kenya," Applied Economics and Finance, Redfame publishing, vol. 5(3), pages 100-107, May.
    • Handle: RePEc:rfa:aefjnl:v:5:y:2018:i:3:p:100-107
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    References listed on IDEAS

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    1. Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
    2. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    3. Kobayashi, Keiichiro, 2013. "A Theory of Public Debt Overhang," CIS Discussion paper series 589, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
    4. Toan Quoc Nguyen & Mr. Benedict J. Clements & Ms. Rina Bhattacharya, 2003. "External Debt, Public Investment, and Growth in Low-Income Countries," IMF Working Papers 2003/249, International Monetary Fund.
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    Cited by:

    1. Yu, Xiuzhi & Jia, Fengshuo & Khan, Suliman & Khan, Zeeshan & Nassani, Abdelmohsen A., 2024. "Natural resources a curse or blessings for international trade? Empirical evidence from high indebted economies," Resources Policy, Elsevier, vol. 89(C).
    2. Chen, Jingquan & Ma, Wanying & Kchouri, Bilal & Ribeiro-Navarrete, Samuel, 2024. "Resource rich yet debt ridden: The role of natural resources and debt servicing in sustainable economic growth," Resources Policy, Elsevier, vol. 89(C).

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    More about this item

    Keywords

    inflation; sectoral economic growth; debt servicing;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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