ABSTRACT

Government expenditure is a key component for guaranteeing a nation assigns and spend budgetary resources to accomplish a robust economic performance. However, the achievement of macroeconomic objectives, from time immemorial, has been a policy priority of every economy whether developed or developing. However, government expenditure still remains an important issue in global debates. The concern is whether or not government expenditure increases the output of different sectors in the economy. Over the past three decades, government spending has been growing at rapid rate in Kenya. The general objective of this study was to examine the relationship between government expenditure and selected sectoral output performance in Kenya. The specific objectives are: to determine the effect of government expenditure on agriculture sector output performance in Kenya. Secondly, is to determine the effect of government expenditure on manufacture sector output performance in Kenya. Lastly, is to determine the effect of government expenditure on service sector output performance in Kenya The study analyzed three sectors in Kenya that is agriculture, service and manufacturing which are the main stimulus for the economy, and focus on the variables that affect the sector output performance that is, government expenditure, public debt servicing, inflation, interest rates, private investment, terms of trade and exchange rate. The study adopted annual time series data for the period 1980 to 2016 to evaluate the effects of government expenditure on selected sectoral output performance in Kenya where ARDL model was used. Unit root test was conducted to test for stationarity and Johansen cointegration test was conducted to establish if there was short-run or long-run relationship between the variables that affected real sector output performance. The study found out a positive relationship between government expenditure and agriculture output performance. The study also found a positive relationship between government expenditure and manufacturing output performance and lastly, the study found out a positive relationship between government expenditure and service output performance. The results implied that this causation should be a vital tool for designing government expenditure policies in the economy