Analysing the Impact of Sudden Capital Inflow Shocks on Kenya's Economic Growth: A Quarterly Time Series Analysis (2008 - 2022)

Faith Wanja Kilaku; John Byaruhanga; Umulkher Ali

doi:10.51867/ajernet.4.2.52

Authors

Faith Wanja Kilaku MSc Economics Student, Department of Economics, Masinde Muliro University of Science and Technology, Kenya https://orcid.org/0000-0002-5103-8741
John Byaruhanga Professor, Department of Economics, Masinde Muliro University of Science and Technology, Kenya
Umulkher Ali Lecturer, Department of Economics, Masinde Muliro University of Science and Technology, Kenya https://orcid.org/0000-0002-3253-2189

DOI:

https://doi.org/10.51867/ajernet.4.2.52

Keywords:

Capital Inflow Shock, Economic Growth, External Shocks, Gross Domestic Product

Abstract

Economic growth indicates the ability of a country to alleviate the poverty rate, reduce the unemployment rate, attain a surplus in balance of payments, and achieve a sustainable increase in gross domestic product (GDP). To achieve improved and continued growth of the economy in a country, there is a need to consider the stability of macroeconomic factors. Therefore, this study sought to examine the effect of capital inflow shocks on Kenya’s economic growth. The study employed a correlational design using time series quarterly data for a period of fourteen years, spanning from 2008 to 2022. The unit root test realized that capital inflow shock was stationary at levels since p-value<0.05. Correlational analysis results revealed that capital inflow shock had a significant, positive impact on the growth of the economy in Kenya, with a numerical result of 0.7001 and a p-value of 0.0000. Further, the regression analysis results gave a correlational coefficient of 0.3022 and a p-value of 0.0000. Thus, the study recommends that the government reform the existing policies to favor foreign investors and to avoid depending so much on externality to reduce susceptibility to external shocks. In order for Kenya to fulfill the millennial development goals, the government must foster an atmosphere that will attract foreign investors through programs like public-private partnerships (PPP), tax regulations, and other incentives to boost capital inflows.

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