Econometric Analyses of the Effect of Commodity Price Shock on Economic Growth in Kenya

Abstract

Purpose: Government policies about commodity consumption have an influence on the growth of numerous economic sectors in the globalized world. Africa has experienced a decline in economic welfare, largely due to, a sudden increase in prices and high dependency rate. This study aimed to exploring the uncertainty of commodity price on the Kenya’s economic growth. To assess kind and intensity of the nexus, both descriptive and correlational research designs were utilized.

Design/Methodology/Approach: The work also employed correlational approach applying quarterly time series data trends for the period spanning for 14 years (2008- 2022). Analysis of the data was conducted using E-views software and several diagnostic estimations as well as regression was conducted to check the null hypothesis that stated that explanatory variable had no statistical effect on explained variable.

Findings: From the correlational output of -0.2639(0.0416) commodity price shock revealed a negative significant connection. Both commodity price shock and economic growth dataset had unit root problem, which was resolved after first differencing. The simple regression findings revealed a significant negative impact of -0.2019 (0.0321) for the commodity price shock. Advanced diagnostic tests were also conducted and revealed absence of autocorrelation, and data was normally distributed making the established model appear stable and relevant.

Implications/Originality/Value: The analysis report recommends that the government should embrace local production to control commodity price volatility as well as imports, which make the country more sensitive to shocks. Additionally, establishment of new local industries as well as revival of the existing industries to boost internal production mitigating price volatility as well as vulnerability dependence.