Impact of Trade Agreements Adopted by Kenya Within the East African Region on Its Trade Volumes: the Case of Manufacturing Firms

Abstract

Trade between members of the East African Community has been in existence for many years. The East African Community is an intergovernmental organization comprising of five members countries of Kenya, Uganda, Tanzania, Rwanda and Burundi. The East African Community was created under two key historical phases. One of the most significant developments after the EAC was established the second time was the inclusion of additional two member’s states of Rwanda and Burundi thus making the current membership of EAC to five members. Kenya’s regional trade agreements with other EAC members were set out to standardize customs systems and tariffs enabling easy movement of people and goods using a common tariff. This was set out to boost trade between them and with a ready market from the combined population that would lead to increased trade in the manufacturing sector. Kenya’s income levels and economic performance are comparatively low as compared to other regions of the world. This research is therefore guided by the following objective: to find out the effect of regional trade agreements on Kenya’s trade volumes in the manufacturing sector. The study utilized non-experimental panel design. Kenya, Uganda, Tanzania, Rwanda and Burundi are considered on annual observation for the period between 2005 and 2015, for all the equations that estimated in the study. Data for this study was collected from 6 officers in senior management level working at: The ministry of trade, industry and cooperatives (the directorates of industrialization and enterprise development); Kenya association of manufacturers (Trade and tax committee); The heads of Marketing, investment and operations departments from Bidco oil refinery limited. Data collection sheet was used to collect the secondary data. Time series data for the years 2005 to 2015 meant to capture documented statistics on foreign remittance, FDIs and balance of trade was gathered from the World Bank and CBK records and other economic reports. The study concludes that Kenya exports most of its food products since the formation of EA trade agreement customs with EAC; this is because increase in exporter’s GDP induces an increase in trade with the EA trade partners while an increase in the importers GDP leads to increase in their imports from Kenya. The study also concludes that a decrease in the importers exchange rate negatively affect the Kenya’s exports since it is expensive to buy Kenya’s exports. Trading partners Distance has negative impact of trade between the partners. Kenya’s exports declined when distance between trading countries increases. This could also suggest that trade between Kenya and the EA trade partners is still blocked by border tariffs or transport costs. The study recommends that in order to maintain a sustainable intra EAC exports the trading partners should continue with policies that are geared towards economic growth.