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Money and physical capital are complementary in kenya

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  • Nicholas Odhiambo

Abstract

In this paper, two models have been used to test the relevance of McKinnon's complementarity hypothesis in Kenya. In the first model, the demand for money has been included in the savings function and, simultaneously, the savings rate has been included in the real money balances function. In the second model, the investment variable has been included in the money demand function. Contrary to the results obtained from some previous studies, the paper finds strong support for McKinnon's complementarity hypothesis in both models. This applies irrespective of whether the models are estimated in a static long-run formulation (cointegration model) or in the dynamic formulation (error correction model). The paper therefore concludes that money and physical capital are complementary in Kenya.

Suggested Citation

  • Nicholas Odhiambo, 2004. "Money and physical capital are complementary in kenya," International Economic Journal, Taylor & Francis Journals, vol. 18(1), pages 65-78.
  • Handle: RePEc:taf:intecj:v:18:y:2004:i:1:p:65-78
    DOI: 10.1080/1351161042000180647
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    References listed on IDEAS

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    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. Khan, Ashfaque H. & Hasan, Lubna & Malik, Afia, 1994. "Determinants of National Saving Rate in Pakistan," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 47(4), pages 365-382.
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    Cited by:

    1. Muhammad Mehtab AZEEM & Ayub MOHAMMAD, 2015. "Money and Physical Capital Relationship: McKinnon’s Complementarity Hypothesis on Turkey’s Economy," Expert Journal of Finance, Sprint Investify, vol. 3(1), pages 21-30.
    2. Odhiambo, Nicholas M., 2005. "Money and capital investment in South Africa: A dynamic specification model," Journal of Economics and Business, Elsevier, vol. 57(3), pages 247-258.

    More about this item

    Keywords

    JEL Classification: E2; H5; Kenya; money; physical capital; Johanssen-Juselius Coitegration Model;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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