Manufacturing industry and economic growth in Kenya: a Kaldorian approach for (1971-2013)

Abstract

This study sought to determine the importance of manufacturing industry for the growth of Kenyan economy from Kaldorian perspective. Over the last four decades, the Kenyan economy has experienced mixed growth rates growing at low average of 3.93% annually against Vision 2030 set target of 10% annually. Using regression research design, the paper tested Kaldor’s’ three growth laws using sample of 42 observations during the period 1971-2013. The estimate results do not appear to support Kaldor’s laws in Kenya thus Kaldor’s theory “manufacturing is the engine of growth” is not proven in Kenya. According to the study, manufacturing industry only accounts for 8% of overall GDP growth differences in Kenya which is below 25% target set by Vision 2030. Structural transformation has occurred in reverse with non-manufacturing output constituting the major component of GDP as opposed to manufacturing output contrary to Kaldor’s view. The result concurs with similar studies using Kaldorian approach carried in developing countries like Kenya. The results indicate that 1980s and 1990s as the important period during which structural changes were most significant in determining growth. This is essential for exact evaluation of policy implementation that will bring about structural transformation in the economy. Given the results, the paper recommends appropriate policy implementation that will bring about structural transformation that will stimulate growth