Export Led Growth Hypothesis: an Application of Kenyan Data

Abstract

The export led growth hypothesis, advocates that export growth is key in enhancing economic growth yet no consensus has been reached on the causal relationship between the two. This paper examines the validity of the export led growth hypothesis in Kenya for the period 1980 to 2011 using time series data. The aim of the paper is to determine the direction of causality between export growth and economic growth. A seven variable (GDP, export, import, capital, labour, real exchange rate and terms of trade) model is estimated using the error correction model and granger causality techniques. The results indicate that export led growth hypothesis is valid for Kenya and there exist a unidirectional causality flowing from exports to economic growth. Export diversification, value addition on the export goods and currency stability are some of the recommended policies.