Export Intensity, Total Factor Productivity and Employment in Kenya’s Manufacturing Firms
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Date
2025-11
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Publisher
Kenyatta University
Abstract
The manufacturing sector is vital in achieving industrialization of a country as evidenced by the East Asian Miracle. Kenya has pursued several industrial policies intended to boost the performance of her manufacturing sector whereby several targets have been set. By 2022, the economic output from manufacturing was targeted at 15 per cent whereas the percentage of manufactured exports in all exports was targeted at 60 per cent. However, manufacturing sector’s contribution to economic output averaged 10 per cent between 2007 and 2023 and has persistently declined since 2011. Besides, from 2007 to 2023, the share of total exports made up of manufactured goods averaged 33 per cent and the share of employment in the sector has been below 14 per cent. For more policy guidance, it is imperative to understand the link between key performance indicators in the sector such as export intensity, total factor productivity and employment. This research specifically explored the firm-level determinants of export intensity and established the effect of export intensity on total factor productivity and employment in Kenya’s manufacturing firms. The study utilized panel data obtained from World Bank Enterprise Surveys for the period 2007, 2013 and 2018. The two-step Heckman Sample Selection model was employed to establish the firm-level determinants of export intensity. The effects of export intensity on firm-level total factor productivity and firm employment were analyzed using the Two-Step System Generalized Method of Moments. The results indicated that export intensity was positively influenced by total factor productivity (0.0351%), foreign ownership (0.4281), firm size (0.0632%), firm age (0.0361%), human capital (0.0298%), research and development (0.0464) and negatively influenced by labor productivity (-0.0197%). The study established a positive effect of export intensity (0.2279%), labor productivity (0.4043%) and management experience (0.4459%) on firm level total factor productivity. Total factor productivity was negatively influenced by firm size (-0.2242%) and capital intensity (-0.1796%). Export intensity (0.2868%), firm age (1.7525%) and research and development (0.4562) had positive effects on firm employment while wage per worker (-0.1649%) negatively affected firm employment. Based on the study findings, firms need to focus on enhancing their total factor productivity through adoption of new technologies, innovation and inventions and investment in human capital through enrolling in specialized training programmes by the National Industrial Training Authority. Export promotion strategies such as expansion of Export Processing Zones, Special Economic Zones and participation in regional and international trade agreements ought to be intensified by the government. More so, firms may consider working closely with state agencies and corporations such as the National Research Fund and actively engage in research and development activities. This will aid them secure and utilize research and development grants, set up manufacturing incubators and register for intellectual property rights to safeguard their innovations. Given that Kenya is a labour rich country, the government and firms may consider adopting labour friendly technologies such as collaborative robotics so as to remain efficient and more productive.
Description
A Thesis Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirements for the Award of the Degree of Doctor of Philosophy in Economics of Kenyatta University, November 2025.
Supervisors
1. Dr. Jennifer Njaramba
2. Dr. Laban Chesang