Abstract:
Many developed countries have recognized the advantages of globalization and policies
of improving manufactured exports performance and competitiveness in order to
promote manufacturing sector. The purpose of this study was to analyze
macroeconomic factors that affect manufactured exports performance in Kenya for the
period 1976 - 2015. The specific objectives of the study were to determine the effect of
terms of trade, trade openness, real effective exchange rate, gross domestic product and
foreign direct investment on performance of manufactured exports. The study adopted
International Trade Theory, Heckscher-Ohlin (H-O), Rybczynski Theory and Stolper-
Samuelson Theory and employed explanatory research design .The study was carried
out in Kenya manufacturing sector and used content analysis to obtain annual time
series data from Kenya National Bureau of Statistics and World Integrated Trade
Solution. The study used descriptive statistics and Johansen and Juselius co-integration
test and the Vector Error Correction Method (VECM) was employed in the empirical
analysis to evaluate the relationship among the variables. Results indicate that the series
had unit root and were integrated of order one and the variables also had structural
breaks that were variable specific. Results of Johansen cointegration showed that there
were long run cointegrating relations. Results of Johansen cointegration showed that
there were long run cointegrating relations. Results of Vector Error Correction Model
showed that Foreign Domestic Investment and Trade Openness had significant and
positive effect on Kenya’s manufactured exports while Real Effective Exchange Rate,
GDP and Terms of Trade had significant and negative effect on Kenya’s manufactured
exports on Kenya’s manufactured exports. The results of this study has contributed to
the existing body of knowledge and will assist manufacturing players to make long-
term decisions based not on long-standing rules and regulations but based on thorough
scanning of environments.