International Journal of Social Science & Economic Research
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Lecturer, Faculty of Arts and Humanities, Chuka University, Kenya

NELSON, TORE. "EFFECT OF LENDING INTEREST RATE ON DOMESTIC PRIVATE INVESTMENT IN KENYA." Int. j. of Social Science and Economic Research, vol. 3, no. 2, Feb. 2018, pp. 681-689, Accessed 2018.
NELSON, T. (2018, February). EFFECT OF LENDING INTEREST RATE ON DOMESTIC PRIVATE INVESTMENT IN KENYA. Int. j. of Social Science and Economic Research, 3(2), 681-689. Retrieved from
NELSON, TORE. "EFFECT OF LENDING INTEREST RATE ON DOMESTIC PRIVATE INVESTMENT IN KENYA." Int. j. of Social Science and Economic Research 3, no. 2 (February 2018), 681-689. Accessed , 2018.

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Domestic private investment is the engine of growth in any economy. It is a major source of employment besides positively contributing to national output. Several policies in Kenya have been devised by the government in mobilization of domestic resources aimed at promoting economic growth and development through investment. Despite this, domestic private investment has been growing slowly over the years. The main aim of this study was to analyze the effect of interest rate on domestic private investment level in Kenya over the period between 1963 and 2014. The investment model was modified to capture various factors relevant to Kenya in determining the level of the growth of private domestic investment. The research design adopted for the study was causal research design that helped in investigating the relationship between the variables studied. Annual secondary time series data spanning from 1963 to 2014 obtained from the CBK, World Bank and KNBS was used. Non-probability purposive sampling technique was employed to select the sample of 44 years' time series data for the period 1971 to 2014. Unit root test (ADF test) was used to check the integration order of variables. The Johansen co-integration was employed to establish the relationship among variables. The unit root test revealed that deposit interest rate, lending interest rate and real exchange rate are I(1) while real interest rate and inflation rate are I(O).The findings showed that deposit ,lending and real interest rates negated domestic private investment in Kenya. The results of the study would be very important for policy formulation that would help spur domestic private investment to promote and sustain long term economic growth. Data results would also help policy makers to assess how private sector responds to government policies.