Determinants of domestic demand for locally manufactured goods in Kenya: 1970 - 2003

Abstract

Manufacturing is the comer stone of Kenya's industrial sector. The sector has been inward - oriented, with limited technological progress. Historical experience shows that there is positive correlation between industrial development and economic growth. The Government has put a lot of emphasis on industrialization, but the sector has not been dynamic enough to function as an engine of growth for the economy. Indeed the sector continues to experience a sluggish growth, which is a matter of concern. Based on the existing literature and the available data, this paper provides a descriptive and empirical analysis of the factors that determine demand for locally manufactured goods. The main focus of the study was to identify the determinants of domestic demand for locally manufactured goods and to estimate their relative influence on this demand. Regression analysis is used to specify, estimate and to evaluate the statistical reliability of the model. The study used the Ordinary Least Squares (OLS) technique to estimate the variables' parameters. The study findings are that income price of locally manufactured goods, price of imported manufactured goods and government expenditure has significant impact on demand for the locally manufactured goods. It is therefore vital to adopt policies that enhance per capita income level and offer investment incentives which promote competitiveness of local goods. Government expenditure should be geared towards creating conducive environment for the manufacturing sector to thrive. Similarly it should encourage development of all the other sectors, particularly the agricultural sector since manufacturing sector is linked to all these other sectors.