Effect Of Selected Macroeconomic Variables On Trade Balance In Kenya

Abstract

The subject of Trade Balance has drawn much attention and focus in recent years. The balance of payments records transactions that flow in and out of the country. Research has shown that macroeconomic variables including exchange rate, inflation and interest rate highly influence trade Balance.The study aimed at determining the effect of selected macroeconomic factors on the trade balance in Kenya. The specific objectives were to find out the effects of interest rate, exchange rate as well as inflation on trade balance in Kenya. The study was conducted in Kenya involving macroeconomic data between 1985 -2015. Data collected was purely secondary. The study adopted interest rate parity theory, purchasing power parity theory as well as balance of payment theory in articulating the synthesized concept under the study. The research design was descriptive in nature. The findings of the study was presented using graphs, professional tables as well as charts which was analyzed through time series regression analysis method and was enhanced by use of Eviews 9. The study found that real exchange rate and interest rate positively affects the balance of trade while inflation has a negative effect on the balance of trade. The finding is thereby important to the central bank, the Kenyan government, citizens as well as the scholars and academicians.