DOES THE MARSHALL-LERNER CONDITION HOLD FOR KENYA’S BILATERAL TRADE? A DYNAMIC PANEL DATA APPROACH
Journal Title: European Journal of Business and Social Sciences - Year 2015, Vol 4, Issue 6
Abstract
Between 2010 and 2012, Kenya’s degree of trade openness averaged 70.1% underlining the importance of international trade to the country. In 2012, Kenya’s trade deficit reached 20.8% of GDP, contributing a negative 4 % drag to GDP growth and further threatening macroeconomic stability. Previous attempts to establish the existence of Marshall-Lerner condition used aggregated data which suffers from aggregation bias. This paper therefore aims to investigate the Marshall-Lerner condition in Kenya’s bilateral trade using the recently developed Extended Trade Balance Model. The ImPesaran-Shin (IPS) unit root test and the Pedroni cointegration test were applied on the data after which Mean Group estimation technique was used in the analysis. The findings indicated that the Marshall-Lerner condition was only fulfilled for trade between Kenya and China, UAE, India and South Africa. This paper recommends that while considering currency devaluation, Kenya should do so in bilateral terms.
Authors and Affiliations
MOSES MUTHARIME MWITO| DEPARTMENT OF ECONOMICS, EGERTON UNIVERSITY, P.O. BOX 536 EGERTON, KENYA. mmmutharime@gmail.com, R. NJERI MUHIA| LECTURERS, DEPARTMENT OF ECONOMICS, EGERTON UNIVERSITY, P.O. BOX 536 EGERTON, KENYA. EGERTON UNIVERSITY, KENYA, SYMON KIPROP| LECTURERS, DEPARTMENT OF ECONOMICS, EGERTON UNIVERSITY, P.O. BOX 536 EGERTON, KENYA. EGERTON UNIVERSITY, KENYA, LAWRENCE KIBET| LECTURERS, DEPARTMENT OF ECONOMICS, EGERTON UNIVERSITY, P.O. BOX 536 EGERTON, KENYA. EGERTON UNIVERSITY, KENYA
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