Agricultural Trade Liberalization in Kenya and Implications for Kenya China Trade Relations

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