James K. Gichuki and Eliud Moyi
This paper explores the sustainability of the current account in Kenya. While the country has experienced large deficits for a number of years in the past, it’s recent downward trend and the realization of its pivotal role in Kenya’s development agenda raises concern. It employs the intertemporal approach based on pure time series data between the years 1975 and 2010. The results failed to support the existence of a long-run equilibrium between exports and imports in Kenya. This puts to question the effectiveness of Kenya’s current long-term macroeconomic policies and suggests that Kenya is in violation of its intertemporal budget constraint. These results also point to the possibility of a crisis, given the usefulness of the current account in predicting a crisis.
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