The Impact of Trade Liberalization on Export-Led Growth in Kenya

Abstract

In Kenya, over the last decades there has been a dramatic shift in the stance of development policy from the import-substitution model which encouraged the build-up of domestic manufacturing capacity and substitute domestically produced goods for imports to focusing on production for exports. But, the crucial questions are: Does export performance depend on the liberalization process itself and is there conclusive evidence that trade liberalization has significantly improved the overall economic performance in Kenya? To answer these questions, this study examined the impact of trade liberalization on export-led growth in Kenya. The data set used in the analysis consists of quarterly observations over 1964-2011. The Autoregressive Distributed lag (ARDL) model indicates that labour force, capital, imports, and exports had a positive impact on economic growth, while the trade liberalization policy has had negative effect on the Kenya’s economic growth.