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Assessing The Finance - Growth Channel In Kenya: A VAR Analysis

Author

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  • Joseph Muchai

    (Kenyatta University)

Abstract

The government of Kenya is implementing strategies that will deepen the financial sector with the aim of propelling economic growth. However analytical and empirical evidence shows that in Kenya, financial deepening does not cause economic growth as expected. This paper seeks to establish the points of disconnect in the finance - growth transmission channel. Using the VAR approach, the analysis reveals that enhanced financial deepening leads to increased interest rates. Increased interest rates in turn lead to increased savings mobilization. However, these savings do not influence capital formation. Moreover, capital formation does not lead to enhanced economic growth.

Suggested Citation

  • Joseph Muchai, 2013. "Assessing The Finance - Growth Channel In Kenya: A VAR Analysis," The African Finance Journal, Africagrowth Institute, vol. 15(2), pages 66-84.
    • Handle: RePEc:afj:journl:v:15:y:2013:i:2:p:66-84
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    File URL: http://www.journals.co.za/ej/ejour_finj.html
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    Cited by:

    1. Kodila-Tedika, Oasis & Asongu, Simplice, 2015. "The Effect of Intelligence on Financial Development: A Cross-Country Comparison," MPRA Paper 67295, University Library of Munich, Germany.
    2. Simplice A. Asongu & Jacinta C. Nwachukwu, 2016. "Mobile Phone Penetration, Mobile Banking and Inclusive Development in Africa," The African Finance Journal, Africagrowth Institute, vol. 18(1), pages 34-52.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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