Quantifying the link between industrialization, urbanization, and economic growth over Kenya

Abstract

Industrialization is a key element for economic growth in both developed and undeveloped countries. Due to globalization, the cause-effect between industrialization, economic growth and urbanization are changing. This study investigates the relationship between economic expansion, urbanization, and industrialization in Kenya using a quantitative methodology. Using World Bank economic indicator parameters, it focuses on understanding the complex interrelationships between these factors. Vector Autoregression (VAR) modeling is used to analyze the relationships between GDP, urbanization, and industrialization between 1990 and 2018. The Granger causality test is used to determine the causal linkages between GDP, urbanization, and industrialization. Results show that urbanization is increasing steadily across Kenya, with a high population in central, western, Rift valley, and coastal regions. The availability of agricultural land influences urbanization, with a significant positive relationship between the three parameters. The Granger causality test shows a unidirectional relationship between GDP, urbanization, and industrialization. A minimum of 20% is considered as the benchmark for urbanization to reduce both GDP and industrialization. Unplanned and rapid urbanization, accompanied by ecologically unfavorable industrialization schemes, threatens Kenya’s biodiversity. The study provides insight into the interconnection between the three pillars of the economy and the statistical models developed are useful in forecasting future trends.

Keywords

Economic growth / Industrialization / Urbanization / VAR / Granger causality test

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