Effect of International Trade on Economic Growth In Kenya

Abstract

The general objective of this study was to assess the impact of international trade on economic growth in Kenya with the years under consideration being 1960 to 2010. There are many components of international trade that effect economic growth, but this paper examined the effect of exchange rate, inflation and final government consumption on Kenyan economic growth. World Bank data for these variables were analyzed in order to achieve the desired objectives. A multiple linear regression model, Barro growth model, was used to estimate the existing the relationship between variables then ordinary least square method was applied. From the findings, Exchange rate has no effect on GDP growth rate, while inflations had negative and significant effect on GDP growth rate. Final government consumption had positive effect on GDP growth rate in Kenya. This study recommended the policy makers to emphasize on policies promoting exports, maintaining low and stable inflation rates and encourage government expenditure on development projects so as to encourage economic growth in Kenya.

Keywords: International Trade, Economic Growth, Exchange Rate, Gross Capital Formation, Inflation