The Impact of Key Macroeconomic Variables on Agricultural Infrastructure Investment and Output in Kenya (2005 to 2016)

Abstract

Agriculture is the heart of Kenya’s economic development and will continue to play a significant role for many years to come. The government of Kenya, has been implementing key macroeconomic policies every succeeding year to improve the performance of the economy through agricultural productivity. The identified macroeconomic policies used, have included, fiscal, monetary and, trade policies. Fiscal policy involves the use of public expenditure, taxation and borrowings, while monetary policy is the control of money supply and credit by use of monetary instruments to regulate interest rates in the economy. Trade policies relates to how, our local products competes with other agricultural products globally, thus impacting on the current account balance and thus aggregate demand. Given the fact that international trade in agri-food products is characterized by oligopolistic competition, the competitiveness of local agri-food produce has often had mixed results, leading to a negative current account position. This study attempts to explore the contribution of key macroeconomic policies to the growth of the agricultural output using time series data from 2005 to 2016 obtained from the Central Bank of Kenya and the Economic Surveys, various issues. The empirical perspective of the paper applied Ordinary Least Squares regression using Statistical Package for Social Scientists Software Version 21. It relied on the theoretical support posited by new Keynesians, taking into account the importance of the monetary policy transmitted through the banking sector.It was found that, the variables, current account balance, national income, total commercial bank credit to agriculture, government total expenditure, and real interest rates had a joint statistical significance to agricultural output, and all conformed with a priori- expectations.

Keywords: Macroeconomic policies, Agricultural Infrastructure Investment, Agricultural Productivity, Trade policies, economic growth and poverty reduction