DETERMINANTS OF KENYA'S TRADE IN GOODS: A GRAVITY MODEL APPROACH
Date
2022-06-09
Authors
MOMANYI, JOSHUA OKUMU
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Abstract
This study applied PPML estimation technique to analyze Kenya’s determinants of bilateral trade
flows in goods. It used panel data covering 166 Kenya’s trading partner countries for the period
2005-2020. The empirical results reveal that economic size, population, relative factor endowment,
per capita GDP differential, trade openness, bilateral real effective exchange rate, regional trade
agreement (RTA) and WTO membership, similarity in legal systems, and religious beliefs
positively influence Kenya’s bilateral trade flows. Conversely, distance, contiguity and common
language negatively impact Kenya’s trade flows in goods. The outcome also illustrates that
Kenya’s trade patterns are anchored on the Heckscher-Ohlin theory which states that nations with
similar factor endowments witness higher trade transactions than those with contrary factor
endowment proportions. The study also found that institutional quality and institutional distance
(homogeneity) are not significant in influencing Kenya’s trade flows in goods. Given that the
results showed that Kenya trade more with distant countries compared to its neighbors, there is
need for Kenya (through relevant authorities) to develop appropriate trade policies to raise its trade
potentials with its neighbors