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Abstract:
Private investment has a positive impact on the economic growth of a country. Specifically, it leads to creation of more jobs, improves access to export markets, increases competition, enhances skills and management techniques and boosts the productivity of a country. Private investment levels in Kenya have been low with an average of 12.7 percent since independence. This level is below the recommended level of at least 15 percent of the GDP which is required to spur economic growth. This could be the reason why Kenya's economic growth rate has been low, averaging at about 4.84 per cent. This study therefore sought to find out the effect of private investment on economic growth in Kenya. The study employed the causal-effect research design using a sample of 36 years' time series data from 1979-2015. Diagnostic tests were performed on autocorrelation, collinearity, and heteroskedasticity. Using the error correction methodology, the findings indicated that private investment has a positive and significant effect on economic growth of Kenya. Exports and terms of trade were found to have a positive and significant effect while labour exhibited a negative and significant effect on economic growth. The researcher recommends that policy makers formulate policies that stimulate private investment such as reforms in the financial sector which will help private investors to access more funds for investment. The government should also develop the institutional framework as well as improve the legislative and regulatory environment to encourage private investors.
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