Government Expenditure On Manufacturing, Infrastructure, Agriculture Components, And The Level Of Economic Growth In Kenya 1985-2021
Authors: Livingstone Matete , James Maingi N 
Published: November 2024

There is often contention and discussion regarding the optimal way to allocate public funds to different expenditure components and how they promote economic growth. Government spending has several importance; it raises aggregate demand, and increases employment levels. This eventually spurs a country's economic growth. Public expenditure also helps provide public goods due to market failures and economic exploitation. Public goods such as infrastructure (roads, bridges, airports), education, healthcare, and security are essential for economic growth. Public expenditure also improves the macroeconomy supply side, enhancing economic growth. In addition, the government can offer subsidies to sectors that might require financial assistance for their operations or expansion, which stimulates investment, promotes innovation, increases capital expenditure, and then job creation, which leads to economic growth. It also helps to redistribute income and promote social welfare. The study's main objective was to establish the effect of various public expenditure components on Kenya's economic growth. The specific objectives were to scrutinize the effect of the manufacturing component of government spending on Kenyan economic growth, assess the effect of the infrastructure component of government spending on Kenyan economic growth, and scrutinize the effect of the agricultural component of government spending on Kenyan economic growth. The study adopted a nonexperimental longitudinal research design. Secondary time series data between 1985 and 2021 from Economic Surveys, Statistical Abstracts, Economic reports, and public expenditure reports of the government of Kenya was sed. The study conducted the stationary test, cointegration, and causality test on the data and employed the Vector Error Correction Model in data analysis. The results showed that public expenditure's manufacturing and agricultural components had a positive impact on Kenyan economic growth, while infrastructure had a negative impact in the long run. Manufacturing drives industrialization, which leads to economies of scale, technological advancements, and more efficient production methods. This conforms to endogenous growth theory. Agricultural investment helps sustain economic growth by supporting rural development, reducing poverty, and improving food security. The structural transformation theory suggests that as agricultural productivity improves, resources (e.g., labor and capital) are freed up to be employed in other, more productive sectors. The results of infrastructure negatively impacting economic growth align with fiscal sustainability theory, which states that infrastructure spending may eventually become unsustainable if it leads to persistent fiscal deficits. Governments might need to increase taxes or cut spending in other productive areas (e.g., social services and education), which could dampen economic growth in the long term. Overall, the outcome showed that government spending and potential Kenyan economic expansion are correlated through a sustained relationship. This is evidenced by the R squared, which is at 0.8975. This implies that public expenditure explains 89.75% of the variations in GDP. The study recommends that the government choose the critical area of infrastructure component to invest in. In the long run, the findings showed that infrastructure spending negatively impacts economic growth, which could suggest inefficiencies or corruption in the allocation or execution of infrastructure projects. However, poor infrastructure planning, corruption, cost overruns, or investments in non-productive or underutilized projects could explain the negative long-term impact. The Kenyan government should invest more in the manufacturing sector in areas like agro-processing, the textile industry, pharmaceuticals, healthcare products, automotive assembly, and parts manufacturing, which helps to reduce imports that tend to be high in Kenya. With the agricultural component having a positive effect on Kenyan economic expansion, the state could invest in agriculture sector's areas like Irrigation and Water Management, Sustainable Agriculture, Climate Resilience crops, Agricultural Research and Extension Services, High-Value Crops, agro-processing, and Value Addition