Master Theses: Department of Economics

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Monetary policy, fiscal policy and economic growth stimulation in kenya
(UoEm, 2025-06-03) Muriuki, Dancan Kinyua
ABSTRACT Increased economic growth is a key objective that the Kenyan government strives to achieve in order to reap its welfare benefits. To achieve this, the government of Kenya incorporated the economic pillar in its Vision 2030 which aimed at realizing an annual economic growth rate of 10% by the year 2030. To date, this rate is yet to be achieved and the current economic growth of Kenya remains far below it. Prompted by this, this study set out to investigate whether fiscal and monetary strategies influence Kenyan economic growth and consequently determine which policy is more effective between the two in stimulating the growth of output in Kenya. To achieve the specified objectives, the study used a causal research design to train a Structural Vector Autoregressive model of order three (SVAR (3)) with time series data collected from the first quarter of 2006 through the fourth quarter of 2019.To ensure the model results were robust and reliable, a series of residual diagnostic tests including stationarity, normality, Granger causality, model stability and autocorrelation were performed. The diagnostic results showed that the estimated model was sound and robust for making inferences. The study findings revealed that both strategies had substantial stimulative influence on Kenya’s economic growth rate. Specifically, considering the effect of fiscal plan on Kenya’s economic growth rate, the analysis revealed that positive shocks on tax revenue decreased economic growth significantly for two quarters while a positive shock on debt increased economic growth significantly for two quarters after which the impact decayed to zero. A positive shock on government expenditure was observed to produce inconsequential influence on output growth. Turning to monetary policy, the study found that a positive innovation on the central bank rate and the nominal effective exchange rate, decreased growth significantly for three quarters after which the effect becomes positive and their impact dies overtime. On the other hand, an observation of insignificant effect on growth stimulation was noted when a positive innovation on money supply was introduced. Guided by the results of the comparative analysis on which policy was more potent than the other, fiscal strategy was noted to be more stimulative relative to the monetary policy. As such, this study advocates for the application of expansionary fiscal measures to spur growth in Kenya.
Procurement Practices and Value for Money in State Corporations in Kenya
(UoEm, 2024-09) Muturi Waci, John
Public procurement related expenditure is approximately fifty to seventy percent of the national budget of developing countries and represents close to 33% of the GDP. Mindful of the huge assets committed in open acquirement, the journey for an incentive for cash is basic. This study tried to decide the impact of obtainment rehearses on incentive for cash in State Partnerships in Kenya. In particular, the review looked to survey the impact of acquirement anticipating an incentive for cash in State Companies in Kenya, decide the impact of provider obtaining on incentive for cash in State Partnerships in Kenya, to look at the impact of provisions the board on incentive for cash in State Organizations in Kenya and to assess the impact of E-acquisition on incentive for cash in State Companies in Kenya.. The concentrate additionally took on spellbinding exploration plan and the objective populace was the 167 State Companies in Kenya. Slovin's equation was taken on to choose an example of 118 organizations was utilized in the review. Essential information got from the heads of obtainment capability in every one of the State Enterprises in Kenya was gathered by utilization of a survey. Pilot test was directed to enable affirmation of the authenticity and unflinching nature of the assessment instruments. The information was examined through clear and inferential measurements. The outcomes showed that acquirement arranging, provider obtaining, supplies the board and e-acquisition decidedly and fundamentally influence the incentive for cash in state companies in Kenya. The review reasoned that appropriate acquisition rehearses emphatically and altogether influence the incentive for cash in state companies in Kenya. The review prescribes that to guarantee an incentive for cash, state organizations ought to get ready acquirement plans and the equivalent ought to be approved before the start of the respective financial year. The procurement plan should also involve all stakeholders. State corporations should also ensure compliance to procurement rules and regulations which require adherence to proper sourcing and supplies management. The corporations should also utilize e-procurement to undertake procurement process and enhance value for money. Government and policy makers should come up with policies that will ensure enforcement of procurement rules and regulations. This study proposes that future examinations might zero in because of impact of acquisition rehearses on incentive for cash in private or non- state corporations to find out whether similar findings can be achieved.
Kenya’s Macroeconomic Policies and Trade Efficiency the East African Community
(Anthony Njoroge Muriu, 2024-08)
Despite Kenya dominating trade volumes in the East African Community (EAC), it has been trading below its potential within the region. This is also in spite of the increased scope of the country’s trade opportunities resulting from the region’s increased market integration. Empirical evidence has shown that macroeconomic policies influence international trade flows. However, there is limited empirical evidence on the effect of macroeconomic policies on trade efficiency. The few existing studies on this topic have used estimation techniques that depict efficiency as being drawn from an average level of trade and not the optimal level of trade, as well as not separating the effects of inefficiencies from the statistical noises. This, therefore, creates a knowledge gap that this study aims at investigating by using the stochastic frontier gravity model (SFGM), to determine the effect of Kenya’s macroeconomic policies on its trade efficiency within the EAC. The study used annual panel secondary data for the period 2000 to 2021. This study finds that the GDP of Kenya and that of its EAC trading partners, the geographical distance and border significantly affect trade volume. It also finds that globalization plays a significant role in influencing Kenya’s trade. For the inefficiency model variables, exchange rate depreciation was found to significantly increase trade efficiency, while increase in tariff rate had an adverse and significant effect. Further, the study included corruption as a control variable and found that it significantly increases trade inefficiency. Kenya, though trading at an average efficiency level of 86.91 percent, was found to have high unexploited trade potentials within the region especially with Tanzania and Uganda. The study recommends that Kenya’s policymakers closely monitor the exchange rate while at the same time put in place to progressively reduce tariff rates
Fiscal Deficit Financing and Inflation in Sub-Saharan Africa
(UoEm, 2023-12) Sumba, Jerry Ogutu
Financing fiscal deficit in any country is undertaken with the sole purpose of promoting economic growth and development. However, fiscal deficit financing can be a major source of macroeconomic instability, especially inflation, depending on how it is achieved. Inflation in sub-Saharan Africa has persistently been high, almost double-digit, and volatile compared to other areas with developing countries such as Asia and Latin America. Thus, this study aimed at analyzing the relationship between fiscal deficit financing and inflation among sub-Saharan African countries and determine whether the inflation rate depends on the mode of financing adopted. This study's initial analysis determined the relationship between fiscal deficit financing and inflation while disaggregating deficit financing into domestic and foreign borrowing. This analysis applied a two-step system Generalized Method of Moments model to the secondary panel data for 44 sub-Saharan African countries from 2005 to 2020. In its second analysis stage, this study checked whether the mode of deficit financing selected by the country matters on the inflation level. The quantity scaling analysis determined the relative effect of fiscal deficit financing tools on inflation. The findings of this study reveal that financing fiscal deficit through foreign and domestic borrowing positively influences inflation among sub Saharan African countries, and the severity of the effects on inflation differs between domestic and foreign borrowing. Foreign borrowing was found to have less impact on increasing price levels than domestic borrowing. This is indicated by the domestic borrowing's scaling quantity analysis value of 0.210 against 0.105 for foreign borrowing. Similarly, this study found that one-year lagged inflation, official development assistance, gross domestic product, change in money supply and exchange rate have positive effect on inflation although the effect of the money supply and exchange rate were insignificant. On the other hand, real interest rates and capital formation were found to have a negative effect on inflation as well. The robustness of the test for the obtained results was checked in two ways as follows: First, the two-step system GMM analysis was conducted on the whole sample of 44 sub-Saharan African countries as well as on a sub-group of 20 low and 24 middle-income countries within the region to see whether the results obtained vary on splitting the data. In all estimation models, the results obtained show consistency across all groups of countries in terms of the coefficient sign, size, and significance level, implying that the estimated results are highly robust. Following the findings, this study recommends control of the fiscal deficit through prudent fiscal policies that minimize resource wastage and reduce the fiscal deficit. Second, the study recommends a reduction of domestic debt as a component of public debt to achieve macroeconomic goals at a lower cost to society through less inflation effect. Third, following the negative relationship between real interest rate, capital formation and inflation, the current study recommends sub-Saharan African countries to increase capital formation (domestic investment) and interest rate to achieve macroeconomic stability.
Real Estate Development, Human Capital and Economic Growth in Kenya
(UoEm, 2023-12) Mutuku, Rainard Munyao
Having a stable and high level of economic growth within a country is associated with numerous benefits to the citizens. In developing countries such as Kenya, the rate of economic growth has been low and always below the projected rate each year. In developed countries such as Germany, Japan, and Iceland, development in the real estate sector and investment in human capital have been identified as probable boosters of economic growth. In Kenya, many of the studies done to investigate some of the boosters of economic growth have only been restricted to specific counties thus covering a small scope in terms of geographical area. Therefore, this study assessed the macroeconomic determinants of real estate development and evaluated the effect of real estate sector development and investment in human capital on economic growth in Kenya using secondary time-series quarterly data spanning from the year 2009Q1 to 2019Q4. The study adopted the neoclassical growth theory, the endogenous growth model, and the human capital theory. To achieve the objectives, the study was guided by a causal-research design. Data for the study variables were extracted from the Kenya National Bureau of Statistics and the Central Bank of Kenya. The study utilized an autoregressive distributed lag (ARDL) model for the analysis. Study results revealed that economic growth, central bank rate, and inflation play a key role in enhancing the development of the real estate sector in the long run. The study also established a long-run relationship between real estate development, inflation, the central bank rate, and economic growth. Specifically, in the long run, the study established that inflation and the central bank rate were negatively and significantly associated with economic growth. This study makes significant progress in providing empirical evidence on the effect of real estate development, human capital, the central bank rate, and inflation on economic growth in Kenya. These findings are useful to government policymakers, academicians, and investors in the real estate and education sector. Additionally, the findings enrich the existing theoretical and empirical literature on the real estate sector and human capital. This study recommends strengthening policies by government policymakers to encourage investment in the real estate sector and control lending interest rates, and inflation rates, as they are crucial for the growth of many economies not only in Kenya but also in other developing countries.
Competition, Profitability, Risk-Taking Behaviour and Stability of Commercial Banks in Kenya
(UoEm, 2023-08) Wahinya, Purity Wanjiru
Stable commercial banks stimulate economic growth by facilitating value exchanges. The stability of commercial banks in Kenya has been a concern because of the waves of collapse that have dotted the history of the banking sector. Studies on the drivers of bank stability are essential for providing policy directions to improve bank stability. Due to existing conflicting empirical evidence, this study further analyzes the relationship between competition, profitability, risk-taking behavior, and stability of commercial banks in Kenya. The study was guided by three theories: Too Big to Fail Theory, Agency Theory, and Competition Fragility Hypothesis. This study employed a causal research design with 31 licensed commercial banks in Kenya as the target population. The study extracted data from published financial statements of licensed commercial banks for the period 2001 to 2020. The data were analyzed using the Generalized Method of Moments (GMM). The study finds that increased competition and reduced market concentration result in a more stable banking sector. The competition stability nexus is confirmed by the study, implying that measures should be implemented to foster competition and increase profitability among banks. This includes reduced barriers to entry and optimal capital requirements. A significant positive relationship between profitability and stability of commercial banks was found, implying that more profitable banks have a lower affinity for risk taking, thus making them more stable. The results indicate that banks’ risk-taking behavior has an inverse relationship with stability. The study contributes valuable insights to the existing literature by enhancing the understanding of banking industry performance and aids policymakers, investors and banks in formulating effective strategies. Measures should be implemented to ameliorate excessive risk-taking by banks. The employment of elaborate exposure monitoring systems with clear warning signs is encouraged
Capital adequacy,income diversification,competition and liquidity creation of Commercial Banks in Kenya
(2023-08) Kinini, Dennis Muchuki
Banks create liquidity which in turn improves capital allocation and accelerates economic growth. Liquidity creation is essential and critical as it may lead to a stable financial system and provide growth opportunities. Liquidity has been observed to be more unstable in developing countries than in developed nations. Despite the rise in minimum deposits, commercial banks in Kenya, a developing country, struggle to optimize their profits due to reduced liquidity creation capacity. This study aimed to evaluate how capital adequacy, income diversification and competition impacted Kenyan commercial banks' ability to create liquidity. From 2001 to 2020, the study employed unbalanced panel data from Kenya's 36 licensed commercial banks. Data was extracted from published financial statements and reports from banks. The two-step system generalized method of moments approach was used in the study. To increase the robustness and prevent erroneous conclusions, cross dependence, serial correlation and instrumental validity tests were carried out. Berger and Bouwman's method was used to determine the liquidity creation levels of commercial banks. The capital adequacy liquidity creation link of commercial banks was found to be significantly negative, supporting the financial fragility-crowding out hypothesis. The study found a positive linkage between income diversification and liquidity creation of commercial banks, implying that well-diversified banks have a high level of liquidity creation and vice versa. The study also found a significant negative effect of competition on liquidity creation, depicting competition's value-destroying effect. A tradeoff exists between capital adequacy and liquidity creation, which must be carefully evaluated as changes in capital requirements are considered. Due to this tradeoff, there is a need for an optimal level of capital. The findings suggest that reinforcement of the diversification drive in Kenyan commercial banks is necessary. The value-destroying effect on liquidity creation by competition presented a case for policymakers geared toward consolidating banks' operations through possible mergers and acquisitions. The study has important implications for Kenya's financial sector, as it guides managers and other stakeholders regarding measures that can be taken to increase commercial banks' liquidity creation through capital requirements, diversification, and consolidation of banks
BUDGETARY CONTROLS, REVENUE MOBILIZATION, CORPORATE GOVERNANCE AND FINANCIAL SUSTAINABILITY AMONG PUBLIC UNIVERSITIES IN KENYA
(UOEM, 2021) KARITU, LINDA KAWIRA
The obligation of meeting current and future mandate of public universities remains a big challenge as the universities are required to work within very tight budgetary constraints. Thus, the objective of financial sustainability is to ensure an institutions goals are reached by ensuring there is sufficient income for investment in academic and research activities. The costs of universities activities are rising which leads to the financial sustainability of universities being a primary issue of concern to stakeholders. The declining allocation to public universities from government exchequer has led to inadequate facilities and stalled projects in many universities. As a result, public universities in Kenya need to diversify their revenue sources through commercialization activities and developing market-oriented programmes. Public universities in Kenya are currently in a deep financial crisis that could lead to a closure following the decline in revenues thus the need for the universities to identify ways in which they can continue to remain financially sustainable. The study sought to assess the effects of budgetary controls, revenue mobilization and corporate governance on financial sustainability among public universities in Kenya. The study was anchored on the resource dependency theory, stakeholder theory and agency theory. The target population was the 31 public universities in Kenya as at the year 2019. The study relied on secondary data which was collected from published audited financial statements from the auditor general’s report. Data was analyzed using both descriptive and inferential statistics. To determine the nature of the panel data and the best model for analysis, specification tests for multicollinearity, autocorrelation, Hausman, heteroscedasticity, and normality tests were carried out. The study established that the administration of the public universities was able to spend the universities funds in accordance with the budgets for the years 2014/15 and 2015/16, and this enhanced financial sustainability. However, for the years 2016/17, 2017/18 and 2018/19, the case was different, as the universities were operating on budget deficits as a result of low amounts of Module 2 funds, and thus the universities were financially unsustainable. Further, the management of the public universities were able to mobilize the resources for the universities, especially in the years 2014/15 and 2015/16. However, for the years 2016/17, 2017/18 and 2018/19, the universities resource mobilization went down, as a result of reduction in the number of students that enrolled into the universities. The study further concluded that the universities adhered to the stipulated rules of corporate governance and this contributed to the financial sustainability of the universities. Based on the findings, the study makes the following recommendations; the budgeting committee should readjust the budgets to cater for the amount of the funding that is available. This will reduce wastage, and ensure that the university runs on optimal budgets, thus enhancing financial sustainability. The administration of the public universities should embark on alternative revenue sources, so as to bridge the gaps in the shortfalls of the funding from the Government. Income generating projects should be geared at generating revenue to cater for the budget shortfalls. The universities should consider establishing strong alumni base that will help the universities in consultancy services, funding of research and sourcing for donor funding.
Liquidity Management and Financial Performance of Microfinance Institutions in Kenya
(University of Embu, 2020-12-11) Njue, Alex
Liquidity management is one of the most important duties in any company and thus it cannot be overlooked. Sound liquidity management is integral for financial institutions stability and profitability since deteriorating liquidity management is the most recurrent cause of poor financial performance. In many financial institutions, the biggest risk is lending money and not getting it back leading to liquidity problems as most MFIs in Kenya have no access to a lender of the last resort which is the Central Bank of Kenya. The study investigated the effect of liquidity management on the financial performance of MFI's in Kenya. Secondary data on the study variables were deduced from the audited financial statements of the MFIs under consideration. The data was obtained from the CBK website, CBK’s Annual Supervision reports and also the AMFI annual reports for 5 years from 2012-2016. The desired population of the research consisted of all the twenty-six MFIs in Kenya that were members of AMFI and available at the CBK website. Primary data was collected using questionnaires whereas the secondary data involved analysis of the audited financial statements. The study used both descriptive and inferential statistics to evaluate the data. In descriptive analysis mean, and standard deviation of the responses was analyzed whereas, under inferential statistics, Pearson correlation, panel power correlation and regression analysis were adopted. The analysed data indicated that liquidity management practices fundamentally influenced the financial performance of MFIs in Kenya. The asset quality and maturity gap had a negative but insignificant effect on financial performance whereas capital adequacy had a positive and significant effect on the financial performance of MFIs. The study proposes that MFIs should strive to manage their loan portfolio to reduce delinquent loans as they reduce the MFIs profits, bank advances to customers should also be managed not to exceed customer deposits to reduce the liquidity gap. Management should develop strategies for liquidity management in MFIs. Similarly, capital adequacy enabled the MFIs to absorb shocks that may occur within the financial markets and should be managed to prevent MFIs from financial instability to improve financial performance.
Financial Factors Affecting Liquidity of Savings and Credit Co-operative Societies in Kirinyaga County, Kenya
(University of Embu, 2017-08) Githaka, John M.
Savings and Credit Co-operative Societies are quasi financial institutions that mobilize savings, provide loans as well as other products to their members. Liquidity is considered as one of the serious concern and challenge for the modern era SACCOs. A SACCO having good asset quality, strong earnings and sufficient capital may fail if it is not maintaining adequate liquidity. The general objective of the study was to assess the financial factors that influence liquidity of Savings and Credit Co-operatives Societies in Kenya. A cross-sectional survey research design was used in this study. The target population consisted of all the 60 registered SACCOs in Kirinyaga County from which a sample size of 18 SACCOs was drawn. The study employed stratified random sampling technique. Primary data was collected by use of self-administered semi-structured questionnaires, while secondary data was collected from audited financial statements of the SACCOs and regulator. A pilot test was conducted to ascertain the validity and reliability of questionnaire. The Cronbach’s alpha coefficient was used for reliability test while the content validity technique was used in validating the research instruments. The data was analyzed using descriptive statistics tools such as percentages, mean, standard deviation, mode and variances. Inferential statistics was done by use of Pearson’s product moment of correlation. Multiple regression analysis was performed to assess the relationship between study variables. R2 was used to assess the contribution of independent variable on dependent variable. Data was presented using frequency tables, charts and graphs. The F-test was used to evaluate the significance of the obtained results. The study findings is of great importance to the SACCO management to formulate proper policies. The study helps the regulator and the government to improve on the framework for regulation of SACCO’s. The study found the relationship between liquidity management, net cash flows, credit lending and investment in non-core business and liquidity of SACCOs to be positively correlated. The study concluded that SACCOs in Kirinyaga County mostly capitalized on liquidity management and as such it affected the SACCOs’ liquidity. In addition, the study concluded that it was critical for SACCOs to have adequate liquidity in order to ensure that they meet short term maturing obligations. The study also concludes that cautious credit lending in SACCOs would result to helpfulness in liquidity of SACCOs. The study recommends that the SACCO management must put in place financial strategies to ensure that liquidity is effectively managed on a regular and timely basis and that appropriate policies and procedures are established to limit and control material sources of liquidity risk. It also recommends that SACCOs should also reconsider their loan recovery strategies and collateral for their loans and advances.
Financial Innovations and Performance of Savings and Credit Co-operatives Societies in Kirinyaga County, Kenya
(University of Embu, 2017-08) Ngure, Francis
SACCOS are the main drivers of economic and social development in rural areas of developing countries. In Kenya 81% of the population rely on the SACCOs to access financial services. However the use of SACCOs by Kenyans as a financial service provider has been declining. The SACCOs are faced with challenges of survival due to decline of members. The decline is attributed to the competition from other financial institutions which have embraced financial innovations. The study therefore sought to investigate the effect of financial innovations on performance of SACCOs in Kenya. The study adopted cross sectional descriptive survey research design. The target population was 60 SACCOs registered by SASRA to operate in Kirinyaga County. Stratified simple random sampling technique was used to obtain the sample size of fifty two SACCOs for the study. Primary data was collected using self-administered questionnaires while secondary data was obtained from audited financial statements. A pilot test was conducted to ascertain the validity and reliability of questionnaire. The Cronbach’s alpha coefficient was used for reliability test while the content validity technique was used in validating the research instruments. Primary and secondary data was analyzed using SPSS version. The findings of the study revealed that financial innovations had a positive relationship with financial performance of SACCOs in Kirinyaga County. SACCOs should therefore embrace financial innovations which include product innovations, process innovations and institutional innovations in order to improve their financial performance. SACCOs should introduce new deposit accounts in order to increase the amount of deposits. The SACCOs should also introduce credit and debit cards in order to increase their revenue. Similarly, the SACCOs should introduce electronic fund transfer in order to increase commission fee based income. The institution should automate their operations in order to enhance efficiency. In addition, mobile banking, cashless and paperless services should be introduced in order to reduce operation costs. The firms should also change their management systems and come up with policies that will facilitate restructuring of their operations in order to improve service delivery to their customers.

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