Effects of export composition on economic growth in Kenya (1990-2023)

Abstract

Kenya’s growth under the Vision 2030 strategy is premised on export diversification through increased competitiveness, value addition, and improved regional access. In line with this vision, his study investigated the influence of Kenya’s export composition on economic growth from 1990 to 2023. It focuses on the roles of manufactured, agricultural, and service exports on Kenya’s Economic growth. Although existing literature affirms a strong correlation between export growth and Gross Domestic Product, it predominantly emphasizes export volume while overlooking the composition of exports. This study addresses that gap by assessing how different export sectors contribute to Kenya’s economic performance. The main objective of the study was to analyze the influence of export composition on Kenya’s economic growth. The specific objectives were to determine the influence of manufactured exports on economic growth, establish the effect of agricultural exports on economic growth, and evaluate the contribution of service exports to economic growth. Time series data for manufacturing, services, and agriculture exports for the period 1990-2023 were obtained from the World Bank. The study utilized EViews 14 software for descriptive and inferential statistics. An Autoregressive Distributed Lag (ARDL) model was employed to evaluate both short-run and long-run relationships. Descriptive statistics, unit root tests, and diagnostic tests were also conducted to ensure model validity. The results showed that agricultural exports have a positive and statistically significant short-run impact on GDP growth (coefficient = 0.6889, p = 0.032). Manufactured exports had a marginally significant influence in the long run (coefficient = 0.3485, p = 0.088) while service exports exhibited no statistically significant effect on either time horizon. The findings generally support the Export Led Growth (ELG) Hypothesis that exports positively influence economic growth. However, the study also reveals that the composition of exports matters for Kenya’s economic trajectory. The study concludes that Kenya’s economic growth is significantly influenced by the nature of its export mix. The study recommends a multifaceted export strategy encompassing value addition in agriculture, diversifying export products, and investing in trade-enabling infrastructure in the short term and industrial innovation, targeted export incentives, and service sector modernization in the longer term. These insights can guide policymakers in aligning export development strategies with Vision 2030 and Kenya’s broader economic transformation agenda.