Impacts of Tariff Reduction and Mixed Fiscal Policy on the Kenyan Agricultural and Food Industry: Using the Macro CGE Model

Abstract

The objective of this study is to evaluate the impacts of tariff reduction and mixed fiscal policy on the Kenyan economy. The study assumes a close relationship between fiscal policy and economic welfare. In this regard, the 2009 Social Accounting Matrix and the Kenyan Macro Computable General Equilibrium model are used to evaluate the economic welfare and subsequent changes in both domestic production of various sectors and imports from outside economies. As a result, we found that when the target industries are food manufacturing and food processing industries, like coffee and tea, the welfare measure for households improves greatly.

Common External Tariffs and Trade Efficiency: Lessons for Cross-listed Firms in the East African Community

“…Using the General Equilibrium Model framework, the study underscored the inaccurate estimation of trade impacts explained by variances in labour productivity growth rates. The findings concur with the conclusion by the research [16] noting that the elimination of reciprocal tariff with the industrialized world slightly improves trading implying that trade liberalization is not a panacea for economic welfare improvement. Developing countries need to improve their capital productivity, competitiveness and address other non-tariff barriers in order to realize greater benefits of bilateral and multilateral trade.…”

“…Various empirical analyses have as well been done on the impact of tariffs in Kenya which have elicited critical views on trade, investment, integrated market discourse. According to the paper [16] in their evaluation of the impacts of tariff reduction and mixed fiscal policy on Kenyan agricultural and food industry, economic welfare is enhanced by elimination of trade tariffs. The study used the Macro Computable General Equilibrium Model and assumed close interelation between thecountry's fiscal policy and economic welfare.…”