| dc.description.abstract | The object of this paper was to develop, estimate and
simulate the effects of trade incentives on exports, balance of
payments and economic growth in Kenya. The study was motivated by
a lack of systematic analysis of the relationship between
Kenya's trade policy incentives and its macroeconomic
performance. The study is important both in terms of validation
of theoretical models often used in such studies and for guiding
the choice of a policy mix consistent with the structural and
economic institutions in Kenya.
A five equation general growth model in which real exports
enter as an input in the production process was developed. Real
exports were introduced as a variable to be able to incorporate
the possible advantages of policies designed to promote exports.
The equations were estimated using both two stage least squares
(TSLS) and ordinary least squares (OLS) techniques with time
series data for the period, 1966-86, and validated by dynamic expost
and policy simulations.
The signs and statistical significance of the estimated
coefficients, as well as the dynamic validity of the simulations
strongly supports the model empirically. The study clearly and
strongly confirms the conclusion that trade is very important in
Kenya's development process but is shown to be more in the nature
of a "handmaiden" rather than an "engine" of growth.
More important than the statistical significance of
individual parameters, was a rigorous test of the validity of the
model provided by the dynamic ex-post and policy simulations over
the sample period. The policy simulation exercises performed
showed that trade policies were sub-optimal and that they were
consistent to Kenya's macroeconomic structure. If improved, they
could raise export earnings, investment and economic growth. | en |
