Abstract

The study sought to determine the effect of capital expenditure on Sectoral economic growth and the moderating effect of political risk on the relationship using Auto Regressive Distributed Lag model. The study targeted 11 sectors that receive government expenditure and adopted positivist philosophy and a causal research design. Secondary data for the period 2006-2015 was collected from Kenya National Bureau of Statistics Statistical Abstracts, Kenya National Audit Office reports and Political Risk Group reports. The study conducted Hausman Test, Panel Stationarity Test and Heterogeneity Test as preliminary tests. The study found that capital expenditure has a significant effect on Sectoral economic growth both in the long run and short run. The study further found that political risk has a significant moderating effect on the relationship between capital expenditure and Sectoral economic growth in the long run at the significance level of 0.05. The study concluded that capital expenditure has an effect on sectoral economic growth in Kenya both instantaneously and in the long run. As well, Political risk curbs the effect of capital expenditure in the long run. The study recommends enhancement of capital expenditure. Additionally, the government should enhance political stability to accelerate growth.

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