Effect of Inflation On Growth of Manufacturing Sector in Kenya (2008-2017)

Abstract

Aim: This study sought to address the effect of inflation on the growth of the manufacturing sector in Kenya.
 Research design: The study used descriptive, correlational, and inferential research designs. The study used secondary data, specifically, from the World Bank, United Nations Conference on Trade and Development (UNCTAD), International Monetary Fund (IMF), Central Bank of Kenya (CBK), and Kenya National Bureau of Statistics (KNBS) for the period 2008-2017.
 Methodology: Time series data were analyzed quarterly using EViews software. The study employed descriptive statistics, correlation analysis, and regression analysis. Pre-test analysis entailed Augmented Dickey-Fuller (ADF) tests for unit root, Bai-Perron Multiple Breakpoint tests, and Bounds Cointegration tests. The post-test analysis included the Breusch-Godfrey tests for autocorrelation, the Breusch-Pagan-Godfrey tests for heteroscedasticity, Variance Inflation Factors (VIF) tests for multicollinearity, Jarque-Bera statistics tests for normality, and CUSUM tests for model stability.
 Results: The regression model estimates for inflation were (-0.19269, p<0.05). The results imply that holding other factors constant, a unit increase in inflation reduces manufacturing value-added by 0.19269 units.
 Conclusion: Inflation has a statistically and significant negative effect on the growth of the manufacturing sector in Kenya. To achieve manufacturing value-added growth, the study recommends that the Central Bank of Kenya (CBK) should have inflation targets and adopt appropriate monetary policies to monitor fluctuating inflation rates. Furthermore, the CBK should keep lending interest rates as low as possible so that manufacturers incur less on acquiring credit from commercial banks and ultimately produce goods at affordable prices.

Productivity Factors and the Growth of the Manufacturing Sector among the East African Community Members States: Testing the Adequacy of the Endogenous Growth Hypothesis

“…The escalation of prices has been linked to adverse impacts on the expansion of output, as it can distort business plans, disrupt the flow of investments, and undermine the fundamental value of currency (Hodge, 2006;Amata et al, 2016). The present study's results are consistent with those reported by various authors in the empirical literature pertaining to the relevant subject matter, including Oduor et al (2021), Chaudhry (2021), Bans-Akutey et al (2016), Judith andChijindu (2016), Shahbaz et al (2019), Adaramola and Dada (2020), Babasanya et al (2020), andSade et al (2021). Ali and Ibrahim (2018) reported a finding that differs from our study on the causal impact of inflation on industrial output growth.…”

Factors influencing the participation of Vietnamese enterprises in global value chains: Insights from the manufacturing and processing sectors

“…The results of Silalahi, et al [59] show that in the near term, the inflation variable exhibits a noteworthy adverse impact, whereas over the long term, there is a substantial positive effect. Similarly, Oduor, et al [60] found that a unit increase in inflation reduces manufacturing valueadded by 0.19269 units. On the other side, the research results of Okpe and Ikpesu [61] show that inflation positively affects food imports and negatively affects food exports in Nigeria.…”