Investments in road infrastructure and economic growth : time series analysis of the effects of road network expansions on growth in Kenya

Abstract

Insufficient quality and size of transport infrastructure provision in Kenya remains a major impediment to growth. Interestingly, none of the growth studies in Kenya has provided any quantitative systematic evidence to assess the long-run consequent implications of underinvestment on road infrastructure. Evaluating impacts and communicating the economic significance of road infrastructure investments in quantitative terms could provide a more robust evidence-based feedback mechanism for policy makers—economic analysis is fundamental to making sound and effective road infrastructure budgetary decisions, informing infrastructure policies, and establishing basis for accountability. This research study presents an econometric framework that can be used at the infrastructure strategic planning level to estimate the growth effects of differing levels of budgetary allocations to road development programmes. Based on data from the Ministry of Finance and using time series analysis, vector autoregressive models were estimated that characterize the nature of interaction between public investments in road infrastructure and the associated growth effects on the economy. Findings suggest no long run equilibrium relationship between the investments in road infrastructure and economic growth, and that the short run rate of road expenditure explains about 10% of variation in the rate of economic growth. Granger causality runs from the rate of investments in roads to the rate of economic growth. Further, the rate of convergence in the economy by growth rate to shock changes in the rate of road infrastructure spending is gradual and tends to persist.