Macroeconomic Determinants of Domestic Private Investment Behaviour

Abstract:

The level of private investment in Kenya, Rwanda and Burundi (KRB), as a percentage of real Gross Domestic Product, has been fluctuating over time since independence. Several studies have been carried out on regard to the macroeconomic determinants of private investment at country level, but the findings are inconclusive. Conversely, from the empirical literature review, these studies have failed to capture the impact of availability of credit on private investment in the three states. It is against this limitation that this exploration was conducted in three states using Modified Flexible Accelerator hypothesis so as to show the relationship between private investment and explanatory variables. The results for this study revealed that credit availability exerts a positive and statistically significant impact on private investment growth in KRB hence confirming the key role of domestic credit. From policy perspective the policy makers need to formulate domestic financial sector reform policies to ensure a well-functioning financial institution that promotes domestic credit especially to prolific sectors of the individual economy. This will consequently promote economic growth and help in realizing the domestic macroeconomic targets as well as Sustainable Development Goals.