Growth Effects of Non-Devolved Government Expenditure: Evidence from ARDL Approach to Co integration

Although it is theoretically expected that fiscal decentralization leads to efficient provision of local public services
and induces economic growth, there is a mixed outcome of the non-devolved and devolved effect on economic
expansion across earlier empirical studies. This could be due to non growth-enhancing expenditures that crowdout
outlays that are meant to boost economic growth. Further, devolved allocation is small, about 15 % of total
revenue, to full stimulate economic growth in Kenya. However, national government spends a substantial amount
in counties to complement devolved expenditure. Therefore, the issue of which non-devolved expenditure by
national government can foster permanent movements in county economic growth becomes core. The panel ARDL
and Kao co integration technique were used to test the linkage between non-devolved expenditure and economic
growth in Kenya during the period, 2013-2017. The panel ARDL regression results revealed that the effect of nondevolved
expenditure on economic growth was positive and significant in both long-run and short-run. The
findings provide a basis for recommendation on the need for national government to increase budget allocation
and execution in counties to complement devolved expenditure and also stimulate county economic growth in
long-run.