Determinants of Kenyan Tea Exports: The Gravity Model Approach

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