The Effect of Government Sectoral Expenditure on Poverty Level in Kenya

Abstract

Poverty eradication has been one of the policies that has been pursued since independence years in Kenya. This study investigated the effect of sectoral government expenditure on poverty level in Kenya. Private Consumption per capita, a proxy measure for poverty, was the independent variable while education sector expenditure, health sector expenditure, agriculture sector expenditure and infrastructure sector expenditure were the independent variables. Time series data for the period of 1964-2010 was used and was tested for unit root using Augmented Dickey Fuller test whereby all variables were found to be integrated to I(1). The lag length as selected by Vector Autoregressive model was three. Co-integration analysis and error correction mechanism were used to establish presence of long run and short run relationships among the study variables. Presence of co-integration was confirmed using the Johansen test which showed there was one co-integrating equation. Vector Error Correction model indicated that there was a stable long run relationship between poverty level and sectoral government expenditure in Kenya. The regression results showed that agriculture sector and health sector expenditures have a positive and significant effect on poverty level while infrastructure sector expenditure has a negative and significant effect on poverty level. The effect of education sector expenditure on poverty level was insignificant. It is recommended that the government in Kenya increases expenditure allocation to agriculture and health sectors.

Keywords: Poverty, government sectoral expenditure, co-integration, vector error correction