EFFECTS OF SECTORAL BUDGETARY ALLOCATION ON ECONOMIC GROWTH

Abstract

The objective of this study was to investigate the effect of sectoral government expenditures on economic growth of Kenya over the period between 1970 and 2011, with particular focus on key sectors namely: Agriculture, Defense, Education, Health, Manufacturing, Transportation and Communication. The study employed use of annual Kenyan data from 1970 to 2011 for all the variables. These were tested for stationarity using the ADF test and Breusch-Godfrey Serial Correlation test used to test for autocorrelation amongst the variables. OLS regression was performed and the results differenced with the intercept being eliminated to control for serial auto correlation within the model and to obtain an estimate of the long run relationship between the dependent and independent variables. Results show in the long-run, expenditure on agriculture was positively and significantly related to economic growth. Spending on education was also positive and significant. Expenditure on health was found to be positively related to economic growth albeit insignificantly. Expenditures on defense and transportation and communication with roads as proxy were positively related to economic growth, although statistically insignificant. To further grow economy, the government should consider increased spending in agriculture and education since they are key drivers to growth. Adoption of stringent controls on expenditures in manufacturing is imperative for it to have a positive impact on the economy. The results of the study will generate vital information that developing countries like Kenya, which are resource constrained, can use to inform policy and therefore allocate her limited resources optimally.