Abstract:
From previous studies, the effects of expenditure on economic growth appear to provide mixed results.
Despite this uncertainty, theory suggests that expenditure induce growth. In Kenya, economic growth
has been fluctuating despite the devolved expenditure increasing over time. It is against this
background that this study was carried out to investigate empirically the short-run and long-run effect
of components of county spending on growth in Kenya using panel data set over the period 2013 to
2017. Employing Harris-Tzavalis test, the study tested for the panel unit root and found that all variables
were non-stationary at their level except gross county product (GCP). To check if the variables have
long-run relationship, this study applied F bounds test. The result for this test revealed that there exists
a long-run relationship among the GCP growth and regressors in the model. Once co-integrating was
confirmed using F-bound, the long-run and ECM estimates of the ARDL model were obtained. The
ARDL results revealed that spending on recurrent expenditure exerts a positive and significant effect
on economic growth both in short-run and long-run hence confirming Keynesian theory in Kenya.
However, capital expenditure was insignificant during the study period. From a recommendation
standpoint, this study submits that the policymakers need to put in place policies that will improve
budget allocation and execution so as to improve expenditure increase to capital infrastructure. This is
necessary since counties lack infrastructures that help promote private capital accumulation and
consequently county GCP.
Keywords: Gross county product (GCP), counties, expenditure, panel, autoregressive distributed lag model
(ARDL), short-run, long-run
