An empirical analysis of manufactured exports performance in Kenya: 1980-2010

Abstract

This study analyses the manufactured exports performance in Kenya during the period from 1980 to 2010. The rate of manufacturing exports growth in the past 20 years has been fluctuating and exports structure remain skewed towards primary unprocessed commodities. A key question for policy makers is why substantive industrial and trade policy reforms produced limited response in terms of the growth and diversification of exports. In line with the international trade and economic theory, the paper focuses on the investment GDP ratio, foreign income, real exchange rate, gross domestic product, consumer price index and export processing zones as key determinants for manufactured exports performance in Kenya. Using annual data this paper analyses Kenya's export performance in a long run Linear equation framework. Results suggest that the real appreciation of the shilling and consumer price index adversely effects Kenya's export performance. Investment GDP ratio has a positive effect on manufactured exports and is statistically significant. The results with regard to contribution of economic processing zones to exports of manufactured goods shows a positive relationship with strong causation for EPZ on manufactured exports. The key recommendation from this paper is that there is a need to review the current capital formation strategy and export processing zone regime.