Abstract

This study analyzed how various components of recurrent public spending influence public investment in Kenya. Specifically, it measured the effects on public investment. Despite significant efforts to reduce recurrent expenditure, Kenya's public spending remains heavily dominated by operational costs, hindering its ability to achieve targeted investment levels. In the 2020/21 fiscal year, recurrent expenditure accounted for 81% of the total budget, while debt servicing and compensation of employees took up 14% and 18% respectively. This allocation of resources has limited the government's capacity to invest in critical areas for economic growth, as evidenced by the shortfall in investment compared to the Vision 2030 goals. The study relied on time series data extracted from the Economic Surveys, Kenya National Bureau of Statistics' various Statistical Abstracts, and the World Bank database covering the period from 1970 to 2022. Subsequently, a Bound test identified a long-run equilibrium relationships among the variables. Finally, an autoregressive-distributed lag (ARDL) model was utilized to analyze the causal relationships between recurrent public spending components and  public investments. The results showed that the recurrent expenditure component on general public administration had significant negative effect on public investment in the short run but its first lag crowds in public investment in the long run.  Recurrent expenditure on operation and maintenance costs was found to have positive effect on public investment both in short run and in long run. Lastly, the recurrent expenditure component on debt Servicing Charges was found to crowd in public investment.