| dc.description.abstract | The effect of Public Debt on Economic Growth is a debatable issue between scholars since the onset of the debt crisis in the 1900’s. Public Debt is one of the main macroeconomic indicators which forms countries’ image in the international markets. Public debt refers to the total of the nation’s debts which covers debts of local and state and national governments indicating how much public spending is financed by borrowing instead of taxation. Government debt is one method of financing government operations, though not the only method as governments can also create money to monetize their debts, thereby removing the need to pay interests. The study was done in Kenya, having acquired the rating of an Emerging Economy under World Bank ratings. The country is located in the Africa, between latitudes 41.5-degree North and 41.5 degrees South and longitudes 34 degrees East and 42 degrees West. The general objective of the study was to establish the effect of public debt on economic growth while specific objectives are specified herein. The study variables were premised on three theories: (neoclassical theory, debt overhang theory, in addition to being supported by Harrod-Domar Growth Model). Utilizing Longitudinal research design, Johansen Cointegration test was used to test the goodness fit of model and Vector Auto regression Method used to test hypothesis at 95% confidence index of the data obtained from CBK, KNBS and National Treasury data bases for a twenty year period 1999-2018, the period had vast economic and political spectrum giving it a strong predictive frame econometrically. The results revealed that Treasury Bills, Treasury Bonds, Advances from Commercial Banks, Government Stocks and multilateral debt had a negative and significant effect on economic growth while CBK
Overdraft and Bilateral debt had positive and significant effect on economic growth. It was further revealed that, the moderating variable (Debt Servicing) was a good predictor of economic growth (GDS) since it had improved the R value compared to the unmoderated results. In addition, the findings points to the need for policy framework on domestic debt obligation, cautious country expansionary fiscal Policy (tax cuts) and structuring of the Bond market with respect to volume traded considering both Public and Private sector segments for sustainable economic growth. The findings indicated that both domestic and foreign debt had aspects of positive and inverse relationship with economic growth. Future studies decomposing the debt 2 instruments according to tenure so as to establish how individual components of the debt instruments relate with economic growth as well as the relationship between public debt and economic development at variables level or any other optimal lags are recommended. In theory, this research divulged both divergent and convergent views with the Neoclassical theory that advocates for savings, investments and foreign debt of achieving growth. Since domestic and foreign debt exhibited positive and negative relation to economic growth, interventions to moderate them can be implemented so as to safeguard against crowding out. | en_US |