The study investigates the dynamic relationship between stock prices and four macroeconomic variables in Kenya using cointegration and vector autoregressive framework. The VAR and VECM analysis reveals that macroeconomic variables drive equity market in the long run. The variables in the VAR model are co integrated with 3.8% disequilibrium being corrected quarterly. Notably, inflation has a negative effect on equity market suggesting that policy authorities in Kenya should design polices that mitigate inflation for stock market to develop. The results confirm that stock market is not an avenue for perfect hedge against inflation.
This study sought to understand the traits of the Kenyan exporter, what drives exports performance, and how the exporter responds to targeted policy measures. A two-stage approach to modelling was used. In the first stage, the firm’s decision to export was done in a panel logistic model. In stage two, the drivers of export volumes at the macro-level were estimated using a Vector Autoregressive (VAR) model. The panel econometric modelling method was applied to 118,380 firm-level data spanning 2014 to 2019. While firm-specific characteristics (age, size, access to credit, labour intensity, and labour quality) affect exports, government policy informs of tax incentives may not create a substantial difference in the decision and volume of exports at the firm level. Exporting firms are labour intensive. The results of a VAR model using time series data from 1960 to 2020 confirm the firm-level analysis. Kenya exports are more driven by local production capacity than world demand. Secondly, exports are more labour responsive than capital responsive at a macro level. Local productivity capacity is significantly labour-driven than capital-driven. Therefore, labour-targeted policies would be more impactful. Exports response to local production capacity is instantaneous while a period of 3.5 years lapses before exports respond significantly to world-changing demand.
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