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Name:Diplomacy and exports: The case of Kenya

Diplomatic representation structures aim at achieving several goals, among
them, increasing export volumes and foreign direct investment (FDI). These
structures within the Kenyan context include embassies, career consulates,
honorary consulates and trade offices. Using the gravity model, the study
empirically analyses the contribution of these structures in increasing export
volumes for the period 1980-2010. The contribution made by diplomatic
representation is measured alongside other traditional determinants of trade
and trading partners. The Hausman Taylor Method (HTM) is used as it
overcomes the weaknesses of the random and fixed effects methods. It allows
for the estimation of time invariant variables and addresses the problem of
endogeneity by using internal information in the model to eliminate correlation
between the error term and the included variables.

Traditional determinants of export volumes such as absorptive capacity of
traditional partners and regional and preferential trade agreements are still
very important. Further, diplomatic representation does contribute to Kenya’s
export volumes. The presence of an embassy and trade office in the trading
partner significantly contributes positively to increasing export volumes. The
problem arises from the non-optimal use of these structures, as the annual export
growth is still very low. On the other hand, career and honorary consulates are
not significant in contributing to increased volumes.

Kenya needs, therefore, to redefine its diplomatic representation structure to
allow for the appropriate and optimal use of economic diplomacy to attain
the goals of Vision 2030. The missions should also be evaluated through an
appropriate mechanism to allow for effective performance management. Since
embassies continue to play an important role in economic diplomacy, there is
need to open up more embassies, especially in the African region, in order to
encourage intra-African trade.

Filename:DP 149.pdf
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Created On: 09/18/2014 10:39
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Last updated on: 09/18/2014 10:40
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