Bilateral trade between Kenya and Uganda: an empirical investigation

Abstract

Uganda is Kenya's number one trading partner in Africa, and number three in the rest of the world. It is an important market for Kenya's industrial goods. This study was undertaken to investigate the factors that determine bilateral trade between Kenya and Uganda. To achieve this objective, import demand functions were specified and estimated for each country's demand for the other's goods. Data was collected on relevant variables for the period 1969-1989. The data was analyzed for integration and co-integration, and the appropriate form used in the estimation of the import demand models. The multiple regression estimation technique was applied, to test the hypotheses stipulated by theory to determine the demand for imports. Some diagnostic tests were also carried out to confirm the results of the estimations. The empirical findings of the study were that, ln the case of Kenya, lagged imports had a positive effect on its demands for Ugandan goods, while political conflicts exerted a negative influence on the demand function. For Uganda, the factors that were found to significantly determine the demand for Kenyan goods were income and population, both factors having negative effects on demand.