Abstract
In developing economies such as Kenya, agriculture is a ‘special’ sector and a fundamental engine for economic growth. Kenya has actively pursued agricultural trade liberalization though the existing studies have not clearly delineated its implications on Kenya-China trade relations. What is evident though is that the trade deficit between Kenya and China had widened to the tune US$3.5 billion as of 2018. This is notwithstanding the fact that the trade relations have been beneficial to Kenya in terms of affording a market to major Kenyan exports. Nevertheless, there is flimsy research on the implications of agricultural trade liberalization on Kenya-China trade relations. It is in this regard that the study sought to give direction on how Kenya can capitalize on agricultural trade liberalization to address the widening trade deficit with China. Emphasis was on how tariffs in agriculture and foreign direct investment impact on Kenya-China trade relations. The study was guided by the theory of firm heterogeneity. The study utilized secondary data with United Nations Conference on Trade and Investment (UNCTAD), UN Comtrade database and the World Trade Organization as the sources of the data. The study established that there is limited FDI inflows in the agricultural sector. It is therefore important for the government to ensure that there is conducive environment for investment in agriculture so as to diversify the share of Kenya’s agricultural exports to China. Also, there is need for the adoption of policies that stimulate the diffusion of new technology in agriculture that would facilitate the transition to climate smart crops that would increase investment opportunities as well as contribute to Kenya’s exports. Moreover, since agricultural products face tariff barriers in China, Kenya needs to renegotiate its terms of trade with China in attempts to narrow down its trade deficit. Keywords : Agricultural trade liberalization, trade deficit, tariffs, foreign direct investment DOI : 10.7176/DCS/10-1-07 Publication date: January 31 st 2020
Highlights
Agricultural trade liberalization is the removal or reduction of constraints to agricultural trade between different nations
1.6 Conclusion and Implications for Kenya China Trade Relations In the last 4 decades, the inflows of FDI from China to the Kenyan economy have been on the rise
The Chinese firms established in Kenya are engaging majorly in the manufacturing and service sectors
Summary
Agricultural trade liberalization is the removal or reduction of constraints to agricultural trade between different nations. Agricultural trade liberalization is instrumental in increasing the volume of exports through technology transfers. There is rise in imports in terms of capital goods that are key in promoting technology advancement. With improvement in technology in agriculture, there is a decline in the volume of imports and an improvement in balance of trade. This is notwithstanding the fact that the implications of agricultural trade liberalization on the balance of trade is most often uncertain since it largely depends on the rise in volumes of exports and imports together with the prices of the goods traded
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