An empirical investigation of the policy determinants of the supply of manufactured exports: a case study of Kenya

Abstract

This study embarks on assessing and analyzing the policy environment suitable for the promotion of Kenya's manufactured exports to the industrialized world. It observes that a mixture of both import substitution and export promotional policies have been used to guide industrial development since Independence in 1963. In order to accomplish the objectives of this study, a methodology involving an estimation of a well specified supply model for Kenya's manufactured exports is adopted, the results of which corroborate the theoretical arguments put forward for the expansion of manufactured exports from developing countries, i.e., that supply-side constraints (domestic policy variables) explain better the performance of these countries exports than demand-side variables.' The estimated supply elasticities obtained in this study are not only plausible, but compare well with other similar p studies. All the elasticities have the correct positive sign and their explanatory powers, except for the real exchange rate, are significant: The study concludes that domestic policy variables are crucial to the performance of manufactured exports. The policy implications that can be drawn to accommodate the structural adjustment programme are those aimed at promoting increased growth in manufacturing,and achieving effective relative export prices.