EFFECT OF MACROECONOMIC FACTORS ON AGRICULTURAL PRODUCTIVITY IN KENYA

Abstract

Agriculture is the key driver of Kenya's economic growth and will continue to play a significant role for many years to come. In addition to accounting for 30% of the nation's GDP, the agriculture sector generates over 60% of export revenue, 18% of formal employment, and 60% of informal employment. Furthermore, the sector provides around 65% of the revenues of rural families in the country and 75% of the raw materials used in manufacturing. The Kenyan government has been enacting important macroeconomic policies to boost economic performance through higher agricultural productivity, particularly from 1993 to 2022. This may have contributed to the country's GDP increasing despite low agricultural productivity and rising unemployment. The general objective of this study was to establish the effect of macroeconomic factors on the agricultural productivity in Kenya. Specifically this study sought to: examine the effect of Unemployment on agricultural Productivity in Kenya, determine the effect of Foreign Direct Investment on agricultural Productivity in Kenya and finally to establish the effect of public debt on Agricultural productivity in Kenya. This study was anchored on the Malthusian theory ,Coub Douglas theory, and Keynesian theory. This study adopted a causal research design and used time series data from Kenya National Bureau of Statistics and World Bank spanning from years 1993 to 2022. This study employed E-VIEWS software version 10 to analyse the data both descriptively and by inferential statistics.Correlational analysis indicated a very weak negative relationship (r = -0.0479) between the agricultural productivity and Unemployment; a moderate positive relationships ( r= 0.3213) between Foreign direct investment and agricultural productivity and there was also a strong positive relationship ( r = 0.65907) between Public debt and agricultural productivity. Augmented Dickey –Fuller test for unit root revealed presence of unit at integrated levels I (0) and I (1), but on first difference the variable was stationary showed, while F-Bound tests revealed no cointergration among variables. Multiple regression analysis confirmed the significant negative effect of unemployment with a coefficient -0.5805 and p value 0.000<0.05. Findings also revealed a positive significant effect of foreign direct investment on agricultural productivity with a coefficient of 0.3661 and p value 0.0014<0.05 Further, public debt equally had a positive and significant effect on agricultural productivity with a regression coefficient 0.1038 and p value 0.0072<0.05. The post-estimation diagnostics test indicated that the regression residuals data was normally distributed, independent variables were not correlated and the regression residuals were homoscedastic and not serially auto correlated. The CUSUM test demonstrated that the model was fit for policy making. This study concluded unemployment had negative significant effect while foreign direct investment and public debt had positive significant effect on agricultural productivity in Kenya. This study recommends that government should; develop and implement sustainable subsidy programs to curb unemployment rates, Access and use of modern agricultural technologies and mechanization to increase productivity along selected value chains, external loans for agricultural productivity must be monitored to ensure that they are appropriately channeled into productive agricultural usage for the Kenyan economy