Effect of Bilateral Relations on Economic Growth: A Case Study of the Kenya-China Bilateral relations between 1990 And 2021

Abstract

The essence of bilateral relations is to provide partnering countries with access to resources that are not locally available on more favorable terms than they would otherwise obtain in the free market. One such agreement is the Kenya-China agreement which has existed for a few decades. China has emerged as a major global power marking an unparalleled presence in the international arena with significant influence in Africa. In Kenya, Chinese imports, Foreign Direct Investments, and debts have grown tremendously over the years. Whereas Kenya has experienced some economic growth in those years, it is not yet clear whether the bilateral relationship with China is the cause of this growth. There have been mixed results on the studies done on the implication of Kenya - China bilateral relations on Kenya’s Economic Growth. The study will provide insights on the changing relations between China and Kenya, which may help policy makers, make informed decisions amid China’s growing influence. The general objective of the study was to determine the impact of the bilateral relations between Kenya and China on Kenya’s Economic Growth, while the specific objectives were to determine the effect of the Chinese imports from Kenya, Kenya’s exports to China, Kenya’s debt from China and foreign direct investment inflows from China on the Kenya’s Economic Growth. This was made possible through the analysis of 32 years’ data ranging from 1990 to 2021 on an annual time series secondary data collected from Kenya National Bureau of Statistics. The study employed the Neo-classical model of Solow-Swan Theory, supplemented by the Dependency Theory. The study utilized an explanatory research design. The study employed an explanatory research design using time series econometrics. For the study, secondary data sources from were used. An ARDL model was applied for short-run and long-run analysis. The study findings showed that Kenya's import from China significantly and positively influence economic growth (β = 0.0069 p < 0.05) while Chinese FDI inflow had a significant negative effect on Economic growth (β = -2.960 p < 0.05). Kenya’s exports to China had a negative insignificant effect on the economic growth (β = -0.0144 p > 0.05) and Kenya’s total debt from China had an insignificant positive effect on economic growth (β = -0.034 p > 0.05). The study concluded that Kenya's import from China and Chinese FDI inflow to Kenya significantly influence economic growth while Kenya’s exports to China and Kenya’s total debt from China insignificant influences economic growth. The results suggest that Kenya is an import-led growth economy. Therefore, imports from China, especially for capital goods that are used in critical sectors such as industries, infrastructure, and agriculture should be encouraged. By importing from China, a technologically developed country, Kenya benefits by transfer of technology, knowledge and innovations. It is also recommended that the foreign direct investment from China to Kenya need to be monitored and limited. New policies need to be put in place to protect “dumping” and “crowding out effect” as well as protect local industries and artisans working in the informal sector. The study recommends that future studies explore the moderating role of institutional quality in Kenya on the relationship between Kenya-China bilateral relations on Kenya’s economic growth.