IMPACT OF GOVERNMENT PURCHASES ON GROWTH OF PHARMACEUTICAL INDUSTRY IN KENYA

Abstract

Our study set out to establish the determinants of growth of the local pharmaceutical industry in Kenya, measured in terms of employment levels. The focus of the study is primarily on the role of government purchases. We single out government purchases due to the government’s role as the single largest buyer of pharmaceuticals in the domestic market. Previous studies arrived at the conclusion that industries patronized by government as a client exhibit higher rates of growth compared with industries that are not patronized by government. They attribute this effect to the fact that sustained government purchases can guarantee stable incomes and high profits to industries. We carried out the analysis using a differenced-log model with four lags, and time series data covering the period 1981 - 2010. Besides government purchases of pharmaceuticals, other variables included in the analysis are exchange rates, interest rates, imports, and a proxy for technological improvements in the industry. Our analysis finds a negative and significant coefficient for the government purchases variable, indicating that government purchasing behavior has a negative impact on growth of the local pharmaceutical industry.