EFFECT OF TRANSPORT INFRASTRUCTURE INVESTMENT ON ECONOMIC GROWTH IN KENYA

Abstract

Transport infrastructure is central to the attainment of sustainable economic growth rate of a country. Due to this reason, the Kenyan government has shown commitment to improve transport infrastructure in the recent past by spending 4.5% of Gross Domestic Product on the transport and infrastructure sector. However, this expenditure is below the global spending threshold of 14% of GDP to the sector and it signifies underinvestment of transport infrastructure that has resulted into poor transport system which is the main bottleneck that not only limits realization of the 10% economic growth rate but also the socio-economic development in the country. While based on unbalanced growth theory, this paper analyzed the effect of transport infrastructure investment on economic growth in Kenya for the period 1990 to 2017. A causal research design was used to establish the cause –effect relationship among the variables of the study. The Error Correction Model was estimated using Ordinary Least Squares regression technique. Granger causality test revealed a unidirectional causality running from economic growth to transport infrastructure investment thus supporting Wagner law. Co-integration test confirmed existence of long run economic relationship among the study variables. The paper found that transport infrastructure investment has a positive coefficient of 0.1120 and statistically significant effect on economic growth with a p-value of 0.0263 < 0.05. This means that a unit increase in transport infrastructure investment increases economic growth by 11.20% other factors remaining the same. The paper also established that public investment has positive and statistically significant effect on economic growth while private investment has negative and statistically insignificant effect on economic growth. Interestingly, labour force had negative and significant effect on economic growth. Therefore, the paper concluded that transport infrastructure investment impacts economic growth in Kenya positively and significantly. Conclusively, the paper recommends the government to increase its annual budget allocation to the transport and infrastructure sector since this will enable development of new integrated transport infrastructure and at the same time allow for rehabilitation and maintenance of existing transport infrastructure facilities. This will go a long way in increasing trade and mobility that will lead to high productivity that ultimately propels the economy into sustainable economic growth.