The Impact of Trade Liberalization on Poverty in Kenya

Trade liberalization in Kenya started in the early 1980’s with the structural adjustment programmes, and continued under the reciprocal trade liberalization under the WTO framework. There are several arguments that have been put forward in favour of trade liberalization such as economic growth, in that countries that have opened their markets have experienced higher growth, increased incomes and diffusion of advanced technologies. However, while trade liberalization comes with opportunities for development, it also has several challenges especially of increasing incomes and income inequality in a manner sufficient to foster development in such a way that one is able to economically satisfy his/her needs and self esteem in conducting economic relations and freedom in choosing his/her destinyIn trying to examine the impact of trade liberalization on poverty in Kenya, a CGE model based on the Kenyan SAM for 2003.The households were divided into deciles resulting into 20 household categories for both urban and rural cohorts. The preliminary characteristics of the households were examined and then simulations were undertaken to examine the impact of trade liberalization on households under different scenarios. The scenarios examined were: full liberalization while excluding sensitive products, full liberalization with sensitive products, full liberalization with a 30 percent increase in Donor aid and full liberalization with a 10 percent increase in foreign direct investment. The main findings were that while factor incomes increased marginally, the distribution of incomes did not improve to address inequality. Trade liberalization had positive impact on household welfare in general even though the increases were quite small. Furthermore, trade liberalization affected both urban and poor households differently. Trade liberalization in Kenya can be said to be is pro-rural poor since they experience the highest increase in welfare, in contrast for the urban poorest households , trade liberalization accompanied by foreign direct investment is important in improving the welfare of the urban poorest since all their incomes come from enterprises.