Partial fulfillment for award of Master of Business Administration

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Insufficient quality and size of transport infrastructure provision in Kenya remains a major
impediment to growth. Interestingly, none of the growth studies in Kenya has provided any
quantitative systematic evidence to assess the long-run consequent implications of
underinvestment on road infrastructure. Evaluating impacts and communicating the economic
significance of road infrastructure investments in quantitative terms could provide a more robust
evidence-based feedback mechanism for policy makers—economic analysis is fundamental to
making sound and effective road infrastructure budgetary decisions, informing infrastructure
policies, and establishing basis for accountability. This research study presents an econometric
framework that can be used at the infrastructure strategic planning level to estimate the growth
effects of differing levels of budgetary allocations to road development programmes. Based on
data from the Ministry of Finance and using time series analysis, vector autoregressive models
were estimated that characterize the nature of interaction between public investments in road
infrastructure and the associated growth effects on the economy. Findings suggest no long run
equilibrium relationship between the investments in road infrastructure and economic growth,
and that the short run rate of road expenditure explains about 10% of variation in the rate of
economic growth. Granger causality runs from the rate of investments in roads to the rate of
economic growth. Further, the rate of convergence in the economy by growth rate to shock
changes in the rate of road infrastructure spending is gradual and tends to persist.