Effects of Trade Liberalization on Manufacturing in Kenya: a Case Study of the Textile Industry

Abstract

The textile industry is a critical component of the manufacturing sector. In the 1980s, the value addition of the textile industry to the manufacturing sector averaged 10.8%. However, as the country embarked on a trade liberalization campaign, the textile industry exhibited a consistent decline in its performance. In light of this, the study sought to ascertain the effect of trade liberalization on manufacturing in Kenya, focusing on the textile industry. The specific focus was on the impact of trade openness, foreign direct investment and tariff measures on the textile industry in Kenya. The study relied on the technology spillover theory. Further, the study utilized both primary and secondary data. For the primary data, the study targeted 23 textile export firms in Kenya. On the other hand, the study sourced secondary data from the World Bank Development Indicators. The study relied on the ex-post factor research design. The secondary data indicated that textile value addition to manufacturing was at 13.8%, showing a sustained increase in textile industry value addition to manufacturing. The findings from the textile export firms indicated that trade openness and foreign direct investment positively influenced textile industry performance in Kenya. However, tariff measures did not influence the textile industry. The conclusion was that textile firms are taking advantage of an open trade regime to enhance their access to international markets. Also, through FDI inflows, the textile exports firms have access to new technology that boosts their productivity levels. However, there is no clarity on the tariff measures on textile exports from Kenya to international markets. The study recommended that the government implement open trade policies and ensure that textile export firms have a supportive business environment. Also, there is a need to reduce tariffs on production inputs to boost the production levels of the textile industry in Kenya. Finally, the government should have the legal and regulatory framework in the country to facilitate inflows of foreign investment in the textile industry.