“This paper focuses on the case of Kenya, a country that has experienced two major
donor-aid freezes. The paper uses both aggregated and disaggregated data to develop
the linkage between foreign aid and government expenditure and to estimate the impact of changes in the flow of foreign aid on public expenditures. The rest of the paper is organized as follows: In the next subsection, the research problem is formulated, and this is followed with a detailed review of the public expenditure process in Kenya in Section 2. This review discusses the budgetary process used by the government and reveals the linkage between foreign aid and public expenditure. Section 3 presents highlights of the related literature, which enables the development of the model presented in Section 4. In the final sections characteristics of the time series data and empirical results are discussed, conclusions and suggestions for areas of future research.”
