Determinants and constraints to private investment:the case of Kenya

Abstract

The main objective of this study was to determine some of the factors that influence private investment behavior in Kenya. Private investment is one of the major contributors to economic growth and development in -both developed and developing countries. This is because through investment, new technology can be adopted, employment opportunities can be created, incomes can grow and living conditions of the people can improve thus, ultimately leading to alleviation of poverty. Technology, employment and poverty are among the main problems facing most economies of developing countries and it is through investment that long-term solutions can be reached. The key aspect of our methodology is the application of co-integration technique side by side regression analysis. The former helped us undertake a thorough data generating process in line with new developments in econometric whereas the later ensured that individual elasticity between the dependent and explanatory variables are identified. In order to determine both the long-run and short-run behavior of investment with regard to explanatory variables, a private investment function was developed and estimated at levels to determine the long-run behavior and, then re-estimated on differences terms. The estimation on differences terms was to determine the short-run behavior and the adjustment mechanism by which short-run dynamics adjust towards equilibrium.