The growth rate series in Kenya: Evidence of non‐linearities and factors behind the slow growth

• DOI: http://doi.org/10.1002/ijfe.1606
• Published date: 01 April 2018
• Author: Luis A. Gil‐Alana,Robert Mudida
• Date: 01 April 2018

RESEARCH ARTICLE

The growth rate series in Kenya: Evidence of non‐linearities

and factors behind the slow growth

Luis A. Gil‐Alana

1

| Robert Mudida

2

1

Faculty of Economics, University of

Navarra, Spain

2

Strathmore University, Nairobi, Kenya

Correspondence

Luis A. Gil‐Alana, University of Navarra,

Faculty of Economics and ICS‐NDID,

31080 Pamplona, Spain.

Email: alana@unav.es

Funding information

Ministerio de Economía y Competitividad,

Grant/Award Number: ECO2014‐55236

JEL Classification: C22

Abstract

This paper deals with the growth rate in Kenya, examining its statistical prop-

erties and investigating the factors that may explain the slow growth rates

observed during the last 50 years. The results show that Kenyan growth rate

is unstable with non‐linearities and long range dependence structures. We also

investigate what might explain these features. In this regard, we conclude that

the development of anomalous political institutions in Kenya in the decades

after independence is the root cause that has led to subsequent weak economic

institutions and macroeconomic mismanagement and the vulnerability of the

Kenyan economy to domestic and external shocks.

KEYWORDS

growth rate, Kenya, longmemory, non‐linearities

1|INTRODUCTION

This paper is about the analysis of the growth rate in

Kenya, examining its statistical properties and also

investigating what factors may explain the slow growth

rates observed over the last 50 years. Kenya's post‐

independence economic experience is characterised by a

relative collapse after a period of relatively good growth

that lasted until 1974. The good performance of

the 1960s and early 1970s was not sustained in the

decades thereafter. Although the performance of the

Kenyan economy has improved since 2008, it remains

characterised by low savings accompanied by poor domes-

tic capital formation, increasing only marginally from

19.4% in 2007 to 20.1% in 2011 (Republic of Kenya,

2012). Its real gross domestic product (GDP) growth rate

has also been lower than many other African countries,

including countries in the East African Community.

Moreover, growth in Kenya has long been unbal-

anced, predominantly driven by domestic consumption,

which accounts for about 78% of GDP. Investment

remains well below what is needed to deliver sustained

high growth rates. Capital formation in Kenya during

the 2000s only averages 18.1% of GDP. In fact, although

Kenya had one of the highest investment rates among

peer countries in the 1980s, this declined steadily in the

next two decades to the point that Kenya had the lowest

levels of capital formation of all its peers during the

2000s (Farole & Mukhim, 2013).

This underperformance of the Kenyan economy in a

regional context points to its unrealised potential and to

the constraints existing to effectively translate gains from

innovation in several sectors into economic growth.

Manufacturing competitiveness in Kenya has, for exam-

ple, stalled in recent years both in terms of contribution

to GDP and also in terms of export performance.

In 2010, Kenya posted the highest growth over the

period 2008 to 2013. This was due to the increased eco-

nomic activity under the conditions of increased invest-

ments, good weather conditions, and political stability.

However, in 2011, as discussed earlier, the country's

Prof. Luis A. Gil‐Alana gratefully acknowledges financial support from

the Ministerio de Economía y Competitividad (ECO2014‐55236). Com-

ments from the Editor and an anonymous reviewer is gratefully

acknowledged.

Received: 6 February 2017 Revised: 2 November 2017 Accepted: 14 December 2017

DOI: 10.1002/ijfe.1606

Int J Fin Econ. 2018;23:111–121. Copyright © 2018 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/ijfe 111