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EFFECT OF PUBLIC SECTOR WAGE BILL ON PRIVATE INVESTMENT IN KENYA

 

Leonard Audi Apiyo

School of Economics, University of Nairobi, Kenya

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Leopold P. Mureithi

School of Economics, University of Nairobi, Kenya

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CITATON: Apiyo, L., A. & Mureithi, L., P. (2018). Effect Of Public Sector Wage Bill On Private Investment In Kenya. International Journal of Human Resources and Procurement. Vol. 7 (7) pp 1 – 15.

 

ABSTRACT

 

Private investment is critical in boosting economic growth and development through employment creation and poverty reduction. Efforts by the Kenya government since independence to influence private investment through fiscal policy targeting recurrent expenditure particularly public wages, has not borne desired fruits. Existing studies in Kenya examining the effects of fiscal and monetary policy on private investment have ignored public wage bill as a standalone variable. This study looked at the effect of public wage bill on private investment and the direction of granger causality. The study adopted a reduced form Vector auto-regression (VAR) model using time series data from 1963 to 2015. The study found that government expenditure on public wages had a positive effect on private investment in the short run. In addition, government expenditure on wages and development expenditures were more important in explaining variations in private investment as compared to tax. A uni-directional granger causality running from private investment to public wage bill was also established from the study findings.

 

Key Words: Private investment, Public sector wage bill.

 

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