Relationship between external debt and private investments in Kenya

Abstract

The purpose of this study is to find out the effectiveness of external debt in boosting economic growth in Kenya and its impact on private investment. This study uses an Auto Regressive Distributive Model (ARDL) to estimate the long run impact of external debt on private investments in Kenya. Time series data is used for the period 1971-2016. The main hypothesis in this study is that the large accumulation of external debt cripples investments in the private sector. The results of the model showed that external debt has a negative impact on private investments although it is statistically insignificant both in the long run and in the short run. Meaning that the relationship between the two cannot be determined to be a result of anything but mere chance