An analysis of the effects of ACP-EU trade relation on Kenya's Exports between 1960 and 2010
Despite the long relationship between the EU and the African, Caribbean and Pacific (ACP) countries aimed at encouraging their exports while stimulating growth and investment, the ACP states still face difficulties in integrating into the world economy. This paper examines the effect of this trade relation on Kenya's exports since 1960 through determining the effect of reciprocity on Kenya's real export values. The objective was to determine the effect of the trade relation on exports and to identify the determinants of Kenya's exports to the EU. The study used two stage least square regression and ordinary least square regression method to determine the effect using exports values as the dependent variable and other independent variables were foreign aid, real gross fixed capital formation, terms of trade, consumption which was used as a proxy for real gross domestic product and a dummy variable capturing the effect of reciprocity as a proxy for assessing the effect of the trade relation. The results showed that during periods when there was reciprocity, Kenyan export values were more stagnant and low, unlike periods when ACP states were given preferential treatment i.e. when there was no reciprocity. It is therefore evident that the proposed EPAs may worsen the current situation of Kenya's exports. Similarly consumption, foreign aid, terms of trade and the dummy variable for reciprocity were found to be very significant in determining Kenya's exports to the EU.