Influence of Inflation, Investment and Openness on Performance of Kenya’s Exports (1997-2021)

Abstract

The performance of Kenya’s exports has been poor, yet, to achieve middle-income status by 2030 through sustaining a 10% annual Gross Domestic Product (GDP) growth rate as per the Vision 2030, Kenya has to grow the export sector. Little is known about the results of policy efforts made towards this end over the past two decades. This study, therefore, evaluates the effect of Kenya’s competitive advantage, inflation, investment, and exchange rate on the performance of Kenya’s exports over the period 1997-2021. Time series data was used and Autoregressive Distributed Lag (ARDL) model was estimated. The unit root test results found that all variables were stationary at first difference. The ARDL model results showed that revealed comparative advantage, gross capital formation, and openness has a long-run positive effect on export performance, while; exchange rate and real interest rate had a negative long-run effect on the exports. In the short-run comparative advantage, investment, and openness have a positive effect, whereas; real interest rate, exchange rate, and inflation rate had a negative effect on the exports. It is therefore recommended that Kenya should enhance investment in the industries they have a competitive advantage in; continue pursuing openness policies; maintain low inflation and interest rates and stabilize the exchange rate.