Macroeconomic drivers of economic growth

Abstract

Kenya's GDP growth is hampered by high fiscal deficits, high interest rates, and volatile exchange rates. As a result, the economy has experienced sluggish cycles of low economic growth, prompting policymakers to revise their policies. Kenya's ability to address macroeconomic instability hinges on its ability to increase economic growth. Divergent perspectives on the relationship between selected macroeconomic variables and economic growth is revealed by additional evidence. The goal of this research was to see how certain macroeconomic drivers affected economic growth. The study was based on the theory of endogenous growth. The study, which was based on the philosophical paradigm of positivism, used an explanatory research design and secondary data from the Kenya Bureau of Statistics, which covered the years 1990 to 2020. In the empirical analysis, the study used the bound test to test for a long-run relationship and the Autoregressive Distributed Lag model (ARDL) to evaluate the relationship between the variables. The data was tested for stationarity using the Augmented Dickey Fuller method. The long run ARDL results showed that the coefficients of exchange rate 0.080 (p-value 0.033<0.05), lending interest rate -0.172 (p-value 0.011<0.05), and broad money supply 0.242 (p-value 0.001<0.05) all had a significant impact on economic growth. The results of this study will be useful in forming fiscal and monetary policy, as well as in informing the government about potential solutions to economic growth challenges. According to the study, CBK policymakers should pursue policies that ensure exchange rate stability, determine effective lending interest rates, and keep the fiscal deficit in line with Kenya's economic growth