Title: Government size and economic growth in Kenya: a multivariate dynamic causal linkage

Authors: Sheilla Nyasha; Nicholas M. Odhiambo

Addresses: Department of Economics, University of South Africa (UNISA), P.O. Box 392, 0003, Pretoria, South Africa ' Department of Economics, University of South Africa (UNISA), P.O. Box 392, 0003, Pretoria, South Africa

Abstract: This study empirically examines the dynamic causal relationship between government size and economic growth in Kenya during the 1970-2017 period using the autoregressive distributed lag (ARDL) bounds testing approach. A multivariate Granger-causality model was used in order to reduce the omission-of-variable bias, which has been found to be associated with bivariate Granger-causality models. For this purpose, the study used domestic investment and trade openness as intermittent variables between government size (proxied by government final consumption expenditure) and economic growth. The results of the study are consistent with the Keynesian view as they reveal that, in Kenya, there is a distinct unidirectional causal flow from government size to economic growth - both in the short run and in the long run. This shows that, in Kenya, government expenditure Granger-causes real sector growth. Based on these results, policy makers in Kenya are recommended to pay special attention to the national government size when implementing growth-enhancing policies.

Keywords: government size; government expenditure; economic growth; Granger-causality; Kenya.

DOI: 10.1504/IJSE.2021.114617

International Journal of Sustainable Economy, 2021 Vol.13 No.2, pp.150 - 165

Received: 29 Aug 2020
Accepted: 23 Oct 2020
Published online: 28 Apr 2021 *

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