Exports as a Determinant of Inflation in Kenya: Disaggregated Econommetric Analysis

Abstract

The purpose of this study was to examine exports as a determinant of inflation in Kenya: A disaggregated econometric analysis with specific objectives of establishing the relationship between domestic exports and inflation in Kenya and determining the relationship between re -exports and inflation in Kenya. This was occasioned by inconclusive and incomprehensive analysis on the relationship between exports and inflation given mixed results and failure by scholars to disaggregate total exports into domestic exports and re-exports. Correlation research design was employed using monthly time series obtained from Central Bank of Kenya (CBK) data spanning 132 months from January 2005 to December 2015.Vector Autoregressive (VAR) techniques of cointegration, Granger causality and impulse response analysis were employed. Results indicated a significant positive and negative long run relationship between domestic exports and reexports with inflation in Kenya respectively that were supported by the impulse response analysis. A unidirectional causality running from domestic exports to inflation and re-exports to inflation was also established. The study concluded that domestic exports and re-exports determine inflation in Kenya with domestic exports having greater influence and therefore recommended that the government of Kenya needs to advocate for a trade policy that aims at reducing exports of domestically produced products and increase re-exports. This will ensure that only surplus is exported to reduce shortage of domestically produced commodities hence a reduction in price for the products.

Effect of Inflation On Growth of Manufacturing Sector in Kenya (2008-2017)

“…Manufacturing stands out as one pertinent consideration for the Kenyan government to reduce the rate of exportation. The findings by Kiganda et al [22] support the outcomes of the above studies, including Nyoni [13], Murunga & Mugambi, [21] and Banerjee [10] by suggesting the need to initiate the strategies that can enhance the manufacturing sector in the country as a strategy to reduce inflation.…”

“…One of the indicators of advancement in the manufacturing sector is the country's exportation rate. Subsequently, Kiganda, Obange, and Adhiambo [22] conducted a study aimed at identifying the effect of exports on inflation in Kenya using monthly series data between January 2005 and December 2015 (132 months). Findings indicated a significant positive relationship between export and inflation.…”

Examining the Effects of Domestic versus Global Prices Uncertainty on Sectoral Price Inflation in Malaysia

“…The increase in exports had exacerbated the supply-demand gap which triggered inflation in Pakistan, and thus they suggested that more focus should be put on meeting domestic demand and using resources wisely to boost production. Correlation analysis performed by Kiganda et al [19] revealed a weak significant association between re-exports and inflation, but a strong significant correlation between domestic exports and inflation in Kenya. The Johansen co-integration test showed that domestic exports had highly influenced the inflation in Kenya, whereby they had a significant positive long-run relation.…”