The Contribution of Trade Liberalization to Agricultural Growth in Kenya

Abstract

In developing economies such as Kenya, agriculture is a ‘special’ sector and a fundamental engine for economic growth. Kenya has actively pursued trade liberalization though the existing studies have not clearly delineated its effect on agricultural growth. Research from the World Bank and IMF suggest that poor growth in agriculture is attributed to restrictive trade policies by developing countries. However, studies on trade liberalization effects on agriculture have elicited inconclusive findings. As such, the focus of the study was on establishing the contribution of trade liberalization to agricultural growth in Kenya. Emphasis was on the influence of tariffs, FDI and trade openness on agricultural growth in Kenya. The study was based on the theory of firm heterogeneity. Time series data ranging from 1980 to 2017 was used. The source was the World Development Indicators. In the methodology, ADF test was used to test stationarity. ARDL bound test was used to test cointegration. The study established that, trade openness is key in enhancing agricultural growth in Kenya. As Kenya opens its borders for easy movement of agricultural produce, there is resultant increase in outputs for the domestic and foreign markets. Besides, FDI contribution to agriculture is negative since FDI tend to relate to other sector of the economy other than agriculture. Consequently, farmers are less likely to benefit from technology transfer and the advent of new processes in agriculture. Further, tariffs had no influence on agricultural growth in Kenya. This could be because despite Kenya making commitments to liberalize its trade, the implementation of the policies on free trade was not forthcoming. Therefore, there is need for stringent implementation of liberalized trade policy with the goal of liberalizing further trade in the agricultural sector. As well, there is need for the Ministry of Agriculture to create a conducive environment for investment in Agriculture and link up domestic farmers with investors so as to boost the production levels in agriculture.