Determinants of Kenyan Tea Exports: The Gravity Model Approach

Martin Ndemo Sato

doi:10.7176/jesd/10-14-15

Abstract

Tea exports are one of the primary drivers of economic growth in Kenya. Given its importance in the economy, it is necessary to analyze factors that are determining tea export flows between Kenya and its trading partners. In this paper, the key factors determining Kenya’s tea exports to its major 15 trading partners for the period 1990 to 2017 were analyzed using a gravity model method. For this purpose, the secondary data were collected from official websites of the United Nations as well as other reliable sources. The main findings suggest that an increase in the economic size of importing country and depreciation of Kenyan shilling increases tea exports. On the other hand, an increase in population and per capita GDP of the importing country decreases the demand for tea, leading to a reduction of tea exports. Distance is used as a proxy of transportation cost and it is found to have a negative impact on tea exports. Having a common border and trading with countries that are non-landlocked allows the delivery of Kenyan tea at minimum transportation cost, which increases the export flow of tea from Kenya. Moreover, the results reveal that countries that Kenya shares a common colony with and COMESA members have a strong tendency to receive tea exports from Kenya. These results are essential for the formulation of trade policy to ensure that Kenya’s tea export potential is exploited to boost economic growth and generate employment. Keywords: Gravity model, Kenyan tea exports, panel data, fixed effects, random effects, pooled effects DOI: 10.7176/JESD/10-14-15 Publication date: July 31 st 2020

Highlights

Exports are defined as economic and commercial activities that are regarded as being of great importance for the economic growth and sustainability of nations (Houghton & Sheehan, 2000)
Tea exports play a crucial role in the Kenyan economy because they are one of the leading exports, our analysis, seeks to identify the factors influencing Kenya's exports of tea to its primary import market
The pooled ordinary least square, random effect and fixed effect estimations were made based upon the panel data

Summary

Introduction

Exports are defined as economic and commercial activities that are regarded as being of great importance for the economic growth and sustainability of nations (Houghton & Sheehan, 2000). This is mainly a crucial means of acquiring currencies, which are the means of economic and financial intervention in a country's external markets. In 2018 the ILO estimated that 57% of Kenya’s total employable population of 28 million earn some income from agriculture, including farmers and other off-farm employment related to agriculture (e.g., agri-businesses), Supporting the sector will ensure the livelihood of the majority of the Kenyan people. Existing studies indicate that growth in the agricultural sector in Africa is more successful than similar development in other sectors in reducing poverty (Christiaensen, Demery, & Kuhl, 2011)

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Conclusion