Effect of Trade Facilitation on Kenya’s Trade Performance

Abstract

The widening gap between exports and imports has been a subject of discussion for some time in Kenya. The problem with Kenyan exports is that it has been growing but not at the desired rate. The absolute value of exports has increased over time but has been reduced as compared to the Gross Domestic Product. To correct the trade imbalance, the government implemented several trade facilitation interventions to make exports competitive. These policies include investments in road, rail, and telecommunication networks. The standard gauge railway has not only improved the transportation of bulky goods from the port of Mombasa to Nairobi but also reduced the incidences of accidents and delays experienced on the road. The government has also reduced the procedures and documentation needed to export. The country’s corruption index has also improved from position 134/180 in 2019 to position 124/180 in 2020. Thus, making Kenya a competitive destination for exports. The study therefore investigated the impact of trade facilitation on trade performance. Trade facilitation was further decomposed into infrastructure efficiency, ICT, custom procedures, and corruption index. The gravity model was used to decompose trade facilitation and assess its impact on trade performance. Data was collected for a period of 10 years (2010-2021) from the following databases: World Development Indicators (WDI), CEPII database and Transparency International. The study used the Poisson Pseudo Maximum Likelihood regression method because some data points were not normally distributed hence exhibiting heteroskedasticity. The results indicate that GDP, infrastructure efficiency and common language increase trade volume. While distance, customs procedures and corruption had a negative relationship with trade volumes. ICT and landlock variables do not have a relationship with trade volume. From these results, the study recommended that East African countries should consider completing standard gauge railways and work towards reducing customs procedures and corruption.