Agricultural exports, selected macroeconomic variables and economic growth nexus in Kenya

Abstract

Kenya is the most developed of the original three countries of the East African Community. Kenya to align to long term development agenda to vision 2030 and to attain the goal of big four agenda development priority which includes food security, manufacturing, universal health care and affordable housing as the key fundamental sectors targeted to spur economic growth, Kenya needs to do more on agricultural production to enhance exports since most people are engaged in the agricultural sector. The most worrying problem is the danger caused by the rising costs of production in relation to the fluctuating prices received by exporters causing fluctuation in the volume of exports. Based on that, this study analyzed the relationship between Agricultural Exports and Economic Growth in Kenya. The specific objectives being to determine the relationship between Agricultural Exports and economic growth in Kenya, to determine the effects of physical capital formation on economic growth in Kenya, to investigate the effects of Human Capital on economic growth in Kenya, to determine the effect of inflation rates on economic growth in Kenya and to determine the relationship between exchange rates and economic growth in Kenya. The study made use of time series data for the period between 1964 and 2018 majorly sourced from World Bank data base. The study was guided by the endogenous growth theory and made use of longitudinal research design. Analysis was done following endogenous growth model in line with the time series property tests employing the Auto Regressive Distributed Lags (ARDL) methodologies. Unit root results indicated that at first difference all the variables were stationary. The findings of the study showed that Agricultural Exports(β=0.1372, p-value 0.014<0.05), Gross physical capital formation (β=0.7649, p-value 0.000<0.05), Inflation (β=0.0048, p-value 0.004<0.05) and Exchange rates β=0.0033, p-value 0.001<0.05) are significant in relation to Gross Domestic Product (GDP) growth in Kenya (Economic growth) in the long run whereas; Agricultural Exports(β=0.0956, p-value 0.023<0.05), Gross capital formation(β=-0.1442, p-value 0.013<0.05), Inflation(β=-0.0017, P-value 0.000<0.05) and Exchange rates(β=-0.0023, p-value 0.040<0.05), were significant in relation to GDP growth in the short run. Human capital was found to be insignificant both in the short run and in the long run. The Error Correction Term (ECT) value was negative (ECT=-0.6964) and significant (p-value 0.000<0.05) showing a 69.64 percent speed of adjustment to the equilibrium in one year. This study thus concludes that in the long run Agricultural Exports, Physical capital formation, Inflation and Exchange rates are statistically significant in explaining economic growth in the long run and thus recommends that Kenyan policy makers should enact laws and policies that ensures a stable economy through putting checks on Agricultural Exports, Physical capital formation, Inflation and Exchange rates.