Browsing by Author "Ocharo, Kennedy N."

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    External debt servicing and Current account balance in Kenya
    (2018-07) Muli, James M.; Ocharo, Kennedy N.
    Kenya has experienced persistent current account deficits that have remained underneath the threshold that economists would consider sustainable. At the point when a nation runs steady current account deficit for a long period, it raises worries about the sustainability of this deficit. The persevering current account deficit has led to increase of liabilities to the rest of the world that are financed by the capital account surplus. These should be paid back in the long run. There is no consensus as regards the relationship between external debt servicing and the current account balance in Kenya. The main objective of this study was to analyze the relationship between external debt servicing and current account balance in Kenya. Vector error correction model (VECM) was utilized because there was insufficient theory that connects these variables. The study found that external debt service granger causes current account balance in Kenya. Policies on external debt management should be carefully designed not to weaken macroeconomic fundamentals because they take long time before fizzing out.
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    Fiscal Policy and Public Debt in Kenya
    (IOSR Journal of Economics and Finance, 2018-09) Makau, Justus; Njuru, Stephen; Ocharo, Kennedy N.
    Fiscal policy in Kenya has been unstable. Fiscal balance to GDP ratio worsened from a surplus of 0.2 percent to a deficit of 7.6 percentwhile debt to GDP ratio rose from 25.4 to 56.2 percent between 1963 and 2015. This was against deficit target of 4.8 and debt ratio of 41.4 percent in 2015. The continued build up of debt implies debt stabilization is not a priority and high debt may lead to adverse effects to the economy. The paper estimated the optimal fiscal balance to GDP ratio needed to stabilize debt levels and establish how the government reacts to changes in debt levels using fiscal reaction function in order to establish if the government was concerned with debt stabilization. The government requires an average fiscal deficitratio of four percent between 2016 and 2030. Fiscal policy has not been responding adequately to changes in debt levels as the government pursued an expansionary fiscal policy. There is need for a fiscal law setting maximum fiscal deficit to GDP ratio and adherence to fiscal consolidation guidelines in order to determine the right response to changes in the debt levels to prevent the debt levels from taking an explosive path.
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    Foreign capital inflows and economic growth in Kenya
    (2016-11) Ojiambo, Elphas; Ocharo, Kennedy N.
    Foreign Aid, Foreign Direct Investment and Remittances remain important and stable source of foreign capital inflows to developing countries, as they bring in large amounts of foreign currency that help sustain the balance of payments. Studies have for years examined the nexus between aid and growth, FDI and growth and to a limited extent remittances and growth. While the focus has largely been on the first two nexuses, there is an increasing literature on the remittance-growth nexus. There have however been very few studies that have sought to consider the combined impact of each of these variables on economic growth. This paper examined the above issue within a country-specific focus (Kenya) using Granger Causality and Autoregressive Distributed Lag procedures. We found that there is uni-directional causality between economic growth and Foreign Direct Investment, Labour and Foreign Aid and Macroeconomic Policy environment and Foreign Direct Investment. The study found that Aid has a positive and significant effect on economic growth when the macroeconomic policy environment is accounted for. Remittances are found to have a short-run negative effect on economic growth but positive effect after a period of one year. We also found a negative relationship between Foreign Direct Investment and economic growth in Kenya possibly due to its volatility and its low level of inflow.
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    Foreign direct investment, institutional quality and economic growth in Kenya
    (2016-07) Meah, Daudi O.; Onono, Perez A.; Ocharo, Kennedy N.
    The study was done to investigate the effect of FDI on economic growth in Kenya, to determine the influence of institutional quality on the effect of FDI on economic growth, and to determine the effects of structural breaks on economic growth in Kenya. This was based on the failure of the reviewed studies to capture the role of institutional quality in this effect. Markets that are likely to persist in low-quality-institution jurisdictions are those in which exchange is simultaneous and self-reinforcing. Such markets are common either because many of the exchanges simply meet the conditions for self-reinforcement or just because they are so lucrative that the absence of selfreinforcement makes even risky exchanges worthwhile. However, many transactions require a third party for their reinforcement. These are non-simultaneous transactions whereby the quid is needed at one time or place and the pro at another. Data used in the study were obtained from published sources for the period 1975 to 2013 and they were subjected to statistical analysis. To answer objective one, two, and three the study used ordinary least square estimation and the findings were that FDI affects economic growth positively and institutional quality has a growthenhancing effect on FDI.
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    Labour Diversity and Domestic Firm’s Productivity in Kenya
    (2015-07) Mugendi, Charles N.; Ocharo, Kennedy N.
    This study attempted to empirically examine the effect of labour diversity on firm’s productivity in Kenya. To achieve this objective primary data was collected from various firms. Thereafter analysis was done using Feasible Generalized Least Square method (FGLS). According to the study, firms that had more labour diversity in terms of skills and gender were more productive. But ethnic diversity had no impact on productivity. This is a crucial finding given the ongoing debate on the role of gender in development. Additionally, other variables like size of the firm and research & development expenditure had an influence on firms’ productivity.
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    Macroeconomic Environment and Public Debt in Kenya
    (2018) Makau, Justus K; Njuru, Stephen; Ocharo, Kennedy N.
    Purpose: To estimate the optimal levels of real economic growth rate needed to stabilize debt levels and carry out a stochastic debt simulation to determine the possible future debt path and its distribution in Kenya. Methodology: The paper used time series data from 1963 to 2015. Auto Regressive Distributed Lag (ARDL) bound test procedure was used to test for short run and long run relationships among the variables. A VAR model was estimated followed by a simulation process to forecast the future values of the variables in the modified equation of motion of debt. The stochastic simulation process involved the extraction of variance - covariance structure of shocks and Monte Carlo simulation to separately simulate paths for each of the determinants of debt which are needed to construct the fan chart. The simulated values of these variables were then used to estimate and forecast the debt to GDP ratio using the modified equation of motion of debt from 2016 to 2030. Findings: The study found that an average economic growth rate of 5.4 percent between 2016 and 2030 will be sufficient to stabilize the debt levels in the country. The simulated debt shows the debt levels increasing from 56.2 percent in 2015 to 71.2 percent in 2030. Compared to the country’s debt threshold of 74 percent by the World Bank, this puts the economy at high risk in the event of any adverse shocks. Further, if the government deliberately targets to increase economic growth by 5 percent of the previous year, it will reduce the debt levels from 56.2 in 2015 to 46 percent in 2030. Unique contribution to theory, practice and policy: The government needs to explore innovative financing mechanisms for the desired infrastructural projects such as Build Operate and Transfer which will spur economic growth and at the same time ensure debt sustainability.
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    Mediation Effect of Macro-Economic Factors on the Relationship between Banks’ Financial Soundness and Financial Performance
    (2020) Kirimi, Peter N.; Kariuki, Samuel N.; Ocharo, Kennedy N.
    Analyzing the effect of macro-economic factors is essential for business growth. The study analyzed mediation effect of macroeconomic factors on the relationship between financial soundness and financial performance of 39 commercial banks in Kenya using data from 2009 to 2018. The study was modeled on the theory of production with CAMEL variables as factor inputs and financial performance measures as factor outputs mediated by macro-economic factors. The study found that gross domestic product growth, interest rate, exchange rate and inflation had a mediating effect on the relationship between banks financial soundness and net interest margin. In addition, gross domestic product growth, interest rate and exchange rate were not mediators on the relationship between financial soundness and earnings per share as a financial performance measure. The study also established that exchange rate had mediation effect on the relationship between financial soundness and net interest margin and return on assets respectively. Further, inflation was found to have a positive mediation effect net interest margin, earnings per share and return on assets as measures of financial performance, there was absence of mediation effect when return on equity was used as financial performance measure. Bank management needs to understand the direction of the effect of mediation of macro-economic factors on banks’ financial soundness for effective financial soundness policy formulation to improve financial performance.
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    Private capital inflows and economic growth in Kenya
    (2014-04) Ocharo, Kennedy N.; Wawire, Nelson W.; Ng’ang’a, Tabitha K.; Kosimbei, George
    Most studies on private capital inflows and economic growth are cross-country and give more weight to foreign direct investment than the other components of private capital inflows. In addition, the question as to whether it is private capital inflows that promote economic growth or it is economic growth that attracts private capital inflows has not been investigated in Kenya. This study investigated the causality between foreign direct investment, portfolio investment and cross-border interbank borrowing and economic growth; and analyzed the effect of foreign direct investment, portfolio investment and cross-border interbank borrowing on economic growth in Kenya. The study found that there was a unidirectional causality from foreign direct investment to economic growth and from economic growth to cross-border interbank borrowing. The coefficient of foreign direct investment as a ratio of gross domestic product was positive and statistically significant, and the coefficients of portfolio investment as a ratio of gross domestic product and cross-border interbank borrowing as a ratio of domestic product were positive and statistically insignificant. Following these results, the Government of Kenya should work towards an environment that attracts foreign direct investment and pursue a high and sustainable economic growth rate so as to attract cross-border interbank borrowing.
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    Real Interest Rate, Inflation, Exchange Rate, Competitiveness and Foreign Direct Investment in Kenya
    (AJP, 2018) Musyoka, Ndanu; Ocharo, Kennedy N.
    Purpose: The purpose of this study was to establish the effect of real interest rates, exchange rate, inflation and competitiveness on FDI in Kenya. Methodology: The study used annual time series data for the period 1970-2016. The sources of data included World Bank Indicators and Kenya National Bureau of Statistics annual reports. Data was collected for the variables real interest rates, exchange rates, inflation rate, competitiveness/ease of doing business and FDI. The data for all the variables was in percentage. The study employed ordinary least square regression technique to determine the effect of real interest rate, exchange rate, inflation and competitiveness on FDI in Kenya. Results: From the findings, the study concluded that real interest rates and exchange rates have negative and significant influence on FDI inflows into Kenya. Further, the study concluded that competitiveness has a positive and significant influence on foreign direct investment inflows into Kenya. However, inflation was found to have insignificant influence on FDI. Unique Contribution to Policy: There is need for favourable interest rates, desirable exchange rates and liberalization of the economy by undertaking comprehensive programmes to trade reforms, designed to open the economy and increase its competiveness. The Kenyan government should also encourage freedom of capital transactions with foreigners and competition in domestic market.
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    Remittances and Economic Growth in Kenya (1970-2010)
    (2014-03) Ocharo, Kennedy N.
    Statisticshow that remittances to Kenya have been increasing over the years. Studies on the effect of remittances on economic growthin Kenya are limited and have not included private capital inflows as one of the determinants of economic growth. This studyinvestigated the effect of remittances on economic growth in Kenya. Data was sourced for the World Bank's African DevelopmentIndicators and various Economic Surveys and Statistical Abstracts for the period 1970-20 IO. The study used the ordinaryleast squares estimation to determine the effects of remittances on economic growth. The study found that the coefficientof remittances as a ratio of gross domestic product was positive and significant. The Government of Kenya should putinplace policies that encourage remittances.
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    Staff Profile: Dr. Kennedy Nyabuto Ocharo
    (2017-10) Ocharo, Kennedy N.
    Research Interests Interested in international economics, general macroeconomics , environmental economics, microeconomics