Aid Inflows and Economic Growth: Grants and Loans in the Case of Kenya

Abstract

The present paper compares the impact of grants and concessional loans on economic growth in Kenya and examines whether or not different degrees of political freedom influence this. Autoregressive distributed lags variance bounds tests and error correction models indicate that investment caused economic growth significantly. There is little evidence of globalization-related variables causing economic growth. Grants appear to have affected economic growth negatively, while there is no significant evidence of an effect of concessional loans. This implies that Kenya needs to pursue its own economic development strategy not relying on aid inflows. The impact of grants or loans on economic growth is revealed to be not conditional upon the degree of political freedom in Kenya.