Determinants of location of manufacturing firms in Kenya

Abstract

Growth of the Manufacturing Sector is very essential for employment creation and economic growth. The contribution of Manufacturing Sector to economic growth in Kenya has not been very impressive, as evidenced by its contribution to the Gross Domestic Product (GDP). In the year 2013, Manufacturing Sector accounted for 8.9 per cent of the Gross Domestic Product (GDP) and provided 12.4 per cent of employment in the formal sector. The growth of the Manufacturing Sector which has been at an average of ten (10) percent has stagnated in the past five (5) years. At the moment, there exists uneven distribution in the number of Manufacturing Firms (MFs) located in Kenyan Counties, which has resulted in the disparity and un-equitable regional development. The key concern therefore, is to establish the source of such variation of Manufacturing Firms across Counties, given that the essence of devolution is to achieve balanced regional development. The study aims at investigating key drivers in setting up of Manufacturing Firms, the extent at which County activities influence location processes and patterns of Manufacturing Firms across the Kenyan Counties using Poisson Model and suggest policy recommendations that Counties might adopt for implementation. The results show that cost of land and access to electricity act as the overriding factors as far as location of MFs is concerned. However, what might be taken as astonishing is the realization of the negative and insignificant int1uence of water access. On the basis of these results, it can be taken that significance of cost of land and electricity access is in tandem with the tenets of location theory and partly neoclassical theory. Furthermore, it depicts the place of natural utilities and infrastructure in determining a firm's location.