Abstract:
Economic growth in any context is highly affected by a myriad of economic factors and
one of the aims of the Kenya Government is to stimulate economic growth by vision
2030.This study investigates the impact of macroeconomic variables on Economic
growth in Kenya and goes further to determine whether changes in macroeconomic
variables can be used to predict the future economic growth in the country. Economic
growth is a concept that refers to quantities changes in economic variables and is
attributed to increased overall production. Economic growth is the increase of the
capacities of a country’s economy to produce goods and services to a certain period of
time compared to previous period. The GDP in Kenya advanced to 6.2 percent year-
on-year in the second quarter of 2016 as compared to 5.9 % over the same period in
2015. This study focuses on Kenya where there has been poor economic performance
from 1985-2002, recovery from 2003-07 and poor performance 2008-12 thus
warranting attention of why there has been unstable economic growth in Kenya. The
study is based on endogenous growth theory, neoclassical theory, New Keynesian
framework theory and Accelerator theory of investment. Most studies have failed to
consider the composite impact of the various macroeconomic variables on economic
growth hence this study emphasizes on macroeconomic variables like remittances,
gross capital formation, government consumption, inflation, and private capital flows
on a time-seriated data while looking specifically at Kenya as the exclusive study area.
The study followed an explanatory research design and the study period spanned from
1983-2017. Data was obtained from Central Bank of Kenya, Kenya National Bureau of
Statistics, World Bank, African Development Indicators and relevant internet sources.
Data analyses was done using statistical package for social sciences version 22 and
findings summarized in graphs and tables. Regression analysis was conducted in order
to establish inferential statistics; R, R-Square, P Value and F statistic to determine the
significance of the model. From the findings there is a high significance impact of
macroeconomic variables to economic growth since R-Square was 0.84 and because
their corresponding coefficients are positive. These results are supported by both P
value and F test statistic. P values are positive except for inflation which is -0.05 while
F Value is 48.598 which is greater than the F statistic. Based on these findings, the
study recommends monitoring of the macroeconomic environment since changes in the
macroeconomic variables have an impact on the economic growth. The government
should also work towards an environment that attracts gross capital formation and
proper government spending to spur economic growth by providing a favorable
business opportunity to investors. Proper utilization of capital flows should also be
enforced by coming up with strategies to curb corruption which is rampant in the
country.