Determinants Of Kenya'S Trade In Goods: A Gravity Model Approach

This study applied PPML estimation technique to analyze Kenya's determinants of bilateral trade flows in goods. It used panel data covering 166 Kenya's trading partner countries for the period 2005-2020. The empirical results reveal that economic size, population, relative factor endowment, per capita GDP differential, trade openness, bilateral real effective exchange rate, regional trade agreement (RTA) and WTO membership, similarity in legal systems, and religious beliefs positively influence Kenya's bilateral trade flows. Conversely, distance, contiguity and common language negatively impact Kenya's trade flows in goods. The outcome also illustrates that Kenya's trade patterns are anchored on the Heckscher-Ohlin theory which states that nations with similar factor endowments witness higher trade transactions than those with contrary factor endowment proportions. The study also found that institutional quality and institutional distance (homogeneity) are not significant in influencing Kenya's trade flows in goods. Given that the results showed that Kenya trade more with distant countries compared to its neighbors, there is need for Kenya (through relevant authorities) to develop appropriate trade policies to raise its trade potentials with its neighbors