The Impact of Economic Growth on Poverty Reduction in Kenya: Empirical Analysis Using Autoregressive Distributed Lag (ARDL) Model
Downloads
This paper is an empirical analysis of the impact of economic growth on poverty reduction while controlling for inflation and employment over the period 1997-2019. The study seeks to provide insights into the process of alleviating poverty in Kenya. Empirical analysis is done using Autoregressive Distributed Lag (ARDL) model approach. The time series was first transformed into logarithmic form before contacting unit root test for stationarity using the Augmented Dickey-Fuller (ADF) test. According to the ADF test results, the dependent variable is integrated of order one while the explanatory variables are integrated of different orders. None of the variables is integrated of order above one. As a result, bounds test was used to test for cointegration. The bound’s test null hypothesis of no levels relationship was rejected. Due to the presence of long-run relationship, Error Correction (EC) model was specified for estimation. The coefficient of the error correction term was negative as expected and statistically significant at 5% level. The error terms were free from serial correlation and their variance was constant. Multicolinearity was not a problem and the model was very stable thus valid for forecasting. The results provide evidence that economic growth fosters poverty reduction in Kenya.
Ahuja, H.L (18). (2014). Modern Economics. S. Chand & Company Pvt. Ltd. New Delhi
Allan W. Gregory, Bruce E. Hansen.(1996). Residual-based tests for cointegration in models with regime shifts, Journal of Econometrics, Volume 70, Issue 1,Pages 99-126,
Amaluddin Amaluddin et al .(2018). A Modified Human Development Index and Poverty in the Villages of West Seram Regency, Maluku Province, Indonesia. International Journal of Economics and Financial Issues, 8(2), 325-330.
Campbell, John Y. and Robert J. Shiller. (1988). Interpretting cointegrated models. Journal of Economic Dynamics and Control, 12(2-3): 505-522
David A. Dickey and Sastry G. Pantula (1987). Determining the Order of Differencing in Autoregressive Processes. Journal of Business & Economic Statistics. Vol.5.No.4. pp. 455-461.
David A. Dickey and Wayne A. Fuller (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. Journal of the American Statistical Association. Vol.74, No.366. pp. 427-431 .
Gary M.,Toshihiro I.,(2001). Economic Growth and Poverty Reduction in Sub-Saharan Africa. IMF Working Paper: WP/01/112
Gujarati, D.N., Porter, D.C. & Gunasekar,S. (5).(2012). Basic Econometrics. Tata McGraw Hill Education Private Limited. New Delhi
Gregory, A. and Hansen, B. (1996) Residual-Based Tests for Cointegration in Models with Regime Shifts. Journal of Econometrics, 70, 99-126
Jhingan, M.L. (40). (2011). The Economics of Development and Planning. Vrinda Publications (P) Ltd. New Delhi.
Kennedy P.(2). 2008. A Guide to Econometrics. Blackwell: Oxford, UK.
KNBS. (2005/06). Basic Report on Well-being in Kenya based on Kenya Integrated Household Budget Survey-2005/06
KNBS. (2011). Kenya Economic Survey
KNBS. (2015/16). Basic Report on Well-being in Kenya based on Kenya Integrated Household Budget Survey-2015/16
Koutsoyiannis, A. (1979). Theory of Production. In: Modern Microeconomics. Palgrave, London. https://doi.org/10.1007/978-1-349-16077-8_3
Lisa Nansadiqa, Raja Masbar1, M. Shabri Abd. Majid. (2019). Does Economic Growth Matter For Poverty Reduction In Indonesia? East African Scholars J Econ Bus Manag; Vol-2:pp 46-51.
Mills, T.C. (2014).Testing for Stability in Regression Models: Analysing Economic Data. Palgrave Texts in Econometrics. Palgrave Macmillan, London. https://doi.org/10.1057/9781137401908_17
Nkoro, E. and Uko, A.K. (2016) Autoregressive Distributed Lag (ARDL) Cointegration Technique: Application and Interpretation. Journal of Statistical and Econometric Methods, 5, 63-91.
Pesaran, M.H., Shin, Y., Smith, R.J., 2001. Bound testing approaches to the analysis of level relationships. Journal of Applied Econometrics 16, 289-326
Peter Warr. (2000). Poverty Reduction and Economic Growth: The Asian Experience. Asian Development Review, vol. 18, no. 2, pp. 131-147
Philip Davis and Miguel Sanchez- Martinez. (2015). Economic theories of Poverty. https://www.jrf.org.uk/report/economic-theories-poverty
Son, Hyun & Kakwani, Nanak. (2004). Economic growth and poverty reduction: Initial conditions matter. https://ipcig.org/pub/IPCWorkingPaper2.pdf
Rosyadi et al. (2020). Human Development Index, Unemployment and Poverty Rate in Kalimantan Barat. Prosiding Seminar Akademik Tahunan Ilmu Ekonomi dan Studi Pembangunan. ISBN: 978-602-53460-5-7
World Bank. (2022). Macro Poverty Outlook for Kenya
