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Author: search.filters.author.Mukhongo WafulaSubject: search.filters.subject.Kenya

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    Effect of Foreign Multilateral Aid and Foreign Bilateral Aid on Capital Formation in Kenya
    (American Research Institute for Policy Development, 2019-09) Mukhongo Wafula; Alphonce Odondo; Nelson Obange
    Low capital formation in Kenya, averaging rate 20.13% of GDP over the period 2006-2017 has kept unemployment rate above 39% with more than 65 per cent of people living on less than $ 2 a day. Yet previous studies do not have a clear answer to the question of whether increasing bilateral aid/multilateral aidenhances capital formation or not. This study’s purpose was to investigate the effect of multilateral aid and bilateral aid on capital formation in Kenya. The study was anchored by Solow (1956) model. Autoregressive distributed lag estimates for data over 1974-2017 suggested that multilateral aid has positive insignificant effect on capital formation while bilateral aid has negative significant effect after one year. Error correction mechanism model estimates suggest that bilateral aid has positive significant effect on capital formation in the short-run during the programme year but becomes negative thereafter. The results were robust for impulse response analyses. The study concluded that bilateral aid retards capital formation in the long run but enhances it in the short-run during the first year.Soliciting for more bilateral aid was recommended in order accelerate capital formation in Kenya in the short-run.
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    Effect of Domestic Saving on Capital Formation in Kenya
    (www.iiste.org, 2019-08-31) Mukhongo Wafula; Nelson Obange; Alphonce Odondo
    Kenya’s average rate of gross capital formation of 20.13% of GDP over the period 2006-2017 falls short of at least 25% necessary for developing countries to experience sustainable growth. The attendant effects of low capital formation have entrenched unemployment rate above 39% line and consigned more than 65 per cent of the country’s population to living on less than $ 2 a day. The statistics suggest the need for urgent policy intervention aimed at accelerating capital formation in Kenya. But whether the government should respond by mobilizing more domestic saving or not is the question which this study sought to answer. This is because majority of the previous studies that investigated the effects of domestic saving on development indicators limited themselves to growthsaving nexus. Those that investigated the effect of domestic saving on capital formation either restricted themselves to a bivariate framework or controlled for a few sources of capital formation. This implies that the effect of domestic saving on capital formation is not clear. Besides, the response of capital formation to shocks in domestic saving is not clear. The purpose of this study was to investigate the effect of domestic saving and the response of capital formation to shocks in domestic saving. The study was anchored by Solow’s capital accumulation model within a correlational studies research design. Data over 1974-2017 period was sourced from the World Bank. ARDL bounds test found the existence of cointegrating relationship among gross capital formation, gross domestic saving and the controlled variables when gross capital formation was specified as the target variable. The short-run dynamic model estimates indicated that ECM term corrects 39.56% of deviations from long run equilibrium in one year. ARDL estimation indicated that in the long run, gross domestic saving has positive significant effect on gross capital formation. The results were robust for IRFs analysis which found the response of gross capital formation to innovations in gross domestic saving to be positive and significant. The study concluded that in the long-run, Kenya’s capital formation will be driven by domestic saving. Therefore, to achieve high capital formation in the long-run, the study recommended policies that enhance positive effects of domestic saving for consideration by the government of Kenya.