Tourism And The Current Account Position In Kenya

Abstract

This study aimed at investigating the existence of a long run relationship between tourism earnings and current account position by examining the effect of tourism earnings on current account deficit in Kenya. The study further determined factors that affect current account in Kenya. The study employed co-intergration and vector error correction model and regression analysis. The findings of the study revealed that tourism earnings had a positive coefficient as predicted and was in conformity with previous related studies conducted on relationship between tourism and current account balance. It was also revealed that tourism earnings were not statistically significant to explain changes in the current account even though it exhibited characteristics of a long run relationship with current account deficit. The possible reason for tourism not being statistically significant is due to the data used in the analysis. The study further established that balance on merchandise was the major contributor to the persistent deficit and was statistically significant to explain variation in the current account deficit in Kenya. The study concluded that for Kenya government to control and reduce the persistent current account deficit there is needed to apply fiscal policies and vision 2030 strategies and this was driven by the fact that the imports in Kenya are higher than export creating the huge gap which contribute to the deficit in balance on merchandise.