Kenya’s macroeconomic policies and trade efficiency within the East African Community: A stochastic frontier analysis
Despite Kenya dominating trade volumes in the East African Community (EAC), it has been trading below its potential within the region. This is also in spite of the increased scope of the country’s trade opportunities resulting from the region’s increased market integration. Empirical evidence has sh...
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Elsevier
2024-12-01
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| Series: | Research in Globalization |
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| Online Access: | http://www.sciencedirect.com/science/article/pii/S2590051X2400042X |
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| author | Anthony Njoroge Muriu Paul Mugambi Joshua Moses Mutharime Mwito |
| author_facet | Anthony Njoroge Muriu Paul Mugambi Joshua Moses Mutharime Mwito |
| author_sort | Anthony Njoroge Muriu |
| collection | DOAJ |
| description | Despite Kenya dominating trade volumes in the East African Community (EAC), it has been trading below its potential within the region. This is also in spite of the increased scope of the country’s trade opportunities resulting from the region’s increased market integration. Empirical evidence has shown that macroeconomic policies influence international trade flows. However, there is limited empirical evidence on the effect of macroeconomic policies on trade efficiency. The few existing studies on this topic have also used estimation techniques that depict efficiency as being drawn from an average level of trade and not the optimal level of trade, as well as also not separating the effects of inefficiencies from the statistical noises. This, therefore, creates a knowledge gap that this study aims at investigating by using the stochastic frontier gravity model (SFGM), to determine the effect of Kenya’s macroeconomic policies on its trade efficiency within the EAC. The study used annual panel secondary data for the period 2000 to 2021. This study finds that the GDP of Kenya and that of its EAC trading partners, the geographical distance and border significantly affects trade volume. It also finds that globalization plays a significant role in influencing Kenya’s trade. For the inefficiency model variables, exchange rate depreciation was found to significantly increase trade efficiency, while increase in tariff rate had an adverse and significant effect. Further, the study included corruption as a control variable and found that it significantly increases trade inefficiency. Kenya, though trading at an average efficiency level of 86.91 percent, was found to have high unexploited trade potentials within the region especially with Tanzania and Uganda. The study recommends that Kenya’s policymakers deliberately advance the macroeconomic policies that promote trade efficiency while at the same time closely monitor the ones that hinder efficiency. |
| format | Article |
| id | doaj-art-58d4d0a22ae44abdb7faeae5e26d743f |
| institution | DOAJ |
| issn | 2590-051X |
| language | English |
| publishDate | 2024-12-01 |
| publisher | Elsevier |
| record_format | Article |
| series | Research in Globalization |
| spelling | doaj-art-58d4d0a22ae44abdb7faeae5e26d743f2025-08-20T02:52:16ZengElsevierResearch in Globalization2590-051X2024-12-01910023310.1016/j.resglo.2024.100233Kenya’s macroeconomic policies and trade efficiency within the East African Community: A stochastic frontier analysisAnthony Njoroge Muriu0Paul Mugambi Joshua1Moses Mutharime Mwito2Corresponding author.; Department of Economics, University of Embu, KenyaDepartment of Economics, University of Embu, KenyaDepartment of Economics, University of Embu, KenyaDespite Kenya dominating trade volumes in the East African Community (EAC), it has been trading below its potential within the region. This is also in spite of the increased scope of the country’s trade opportunities resulting from the region’s increased market integration. Empirical evidence has shown that macroeconomic policies influence international trade flows. However, there is limited empirical evidence on the effect of macroeconomic policies on trade efficiency. The few existing studies on this topic have also used estimation techniques that depict efficiency as being drawn from an average level of trade and not the optimal level of trade, as well as also not separating the effects of inefficiencies from the statistical noises. This, therefore, creates a knowledge gap that this study aims at investigating by using the stochastic frontier gravity model (SFGM), to determine the effect of Kenya’s macroeconomic policies on its trade efficiency within the EAC. The study used annual panel secondary data for the period 2000 to 2021. This study finds that the GDP of Kenya and that of its EAC trading partners, the geographical distance and border significantly affects trade volume. It also finds that globalization plays a significant role in influencing Kenya’s trade. For the inefficiency model variables, exchange rate depreciation was found to significantly increase trade efficiency, while increase in tariff rate had an adverse and significant effect. Further, the study included corruption as a control variable and found that it significantly increases trade inefficiency. Kenya, though trading at an average efficiency level of 86.91 percent, was found to have high unexploited trade potentials within the region especially with Tanzania and Uganda. The study recommends that Kenya’s policymakers deliberately advance the macroeconomic policies that promote trade efficiency while at the same time closely monitor the ones that hinder efficiency.http://www.sciencedirect.com/science/article/pii/S2590051X2400042XTrade efficiencyMacroeconomic policiesStochastic frontier gravity modelEast African CommunityTrade potentialGlobalization |
| spellingShingle | Anthony Njoroge Muriu Paul Mugambi Joshua Moses Mutharime Mwito Kenya’s macroeconomic policies and trade efficiency within the East African Community: A stochastic frontier analysis Research in Globalization Trade efficiency Macroeconomic policies Stochastic frontier gravity model East African Community Trade potential Globalization |
| title | Kenya’s macroeconomic policies and trade efficiency within the East African Community: A stochastic frontier analysis |
| title_full | Kenya’s macroeconomic policies and trade efficiency within the East African Community: A stochastic frontier analysis |
| title_fullStr | Kenya’s macroeconomic policies and trade efficiency within the East African Community: A stochastic frontier analysis |
| title_full_unstemmed | Kenya’s macroeconomic policies and trade efficiency within the East African Community: A stochastic frontier analysis |
| title_short | Kenya’s macroeconomic policies and trade efficiency within the East African Community: A stochastic frontier analysis |
| title_sort | kenya s macroeconomic policies and trade efficiency within the east african community a stochastic frontier analysis |
| topic | Trade efficiency Macroeconomic policies Stochastic frontier gravity model East African Community Trade potential Globalization |
| url | http://www.sciencedirect.com/science/article/pii/S2590051X2400042X |
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