Government Capital Expenditure and the Manufacturing Sector’s Output Performance in Kenya

Abstract

The manufacturing sector is named as a key sector that promotes development through contribution to Gross Domestic Product, employment generation, value addition, diversification, industrialization and technological innovations. The government of Kenya has spent a lot of resources to boost the growth of the manufacturing sector. The need for growth in this sector picked momentum in the early 60s. Policies like the Import substitution in 1963-1970, Structural Adjustment Programs in the 80s, the Vision 2030 in 2008, the Kenya Industrial Transformation Program in 2015, and the Big Four Agenda in 2018 have been implemented to spur growth in the sector and to turn Kenya into an industrial middle-income economy. Much emphasis has since been placed on spending by increased government expenditure towards the manufacturing sector to improve the overall performance. Despite all, the conduct of the manufacturing sector, as shown by the sector's contribution to the Gross Domestic Product, only increased substantially in the first three decades after independence, after which it stagnated to below 9 percent to date. The purpose of the study was to find out the effect of government capital expenditure in the manufacturing sector on the sector's performance. The Autoregressive Distributed Lag Error Correction model was used to achieve the objective of the study. The study found out that public resources were allocated to the manufacturing sector. Further, the study found out that government capital expenditure significantly contribute to growth of the manufacturing sector. Recurrent expenditure was also statistically significant in explaining changes in the manufacturing sector performance vfffff