PHD-Department of Econometrics & Statistics

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Effects of Central Bank Rate Pass through on Kenya’s Selected Macroeconomic Variables
(Kenyatta University, 2024-03) Musimbi, David
The study focused on the effects of central bank rate pass through on Kenya’s selected macroeconomic variables. Up until now, most research concentrated on other, shorter-term interest rates such as the repo and interbank rates, which are almost entirely endogenous to the bank rate. After controlling for other variables, there is a significant negative correlation of five percent between the central bank's interest rate and the overall market capitalization. There is a 0.7513 connection between them. According to the study, real GDP growth in Kenya increases by 0.29 percentage points whenever the central bank rate is changed. The interest rate pass through loans as the CBR changes was found to be 0.9666 percent in the short run, while it was 1.29 percent in the long run. Stock or asset values rise by 2.957 percentage points for every percentage point increase in the central bank rate.This study made use of time series data collected between 2010 first quarter and 2021 fourth quarter. The Blanchard model (based on the Exponential Generalized Autoregressive Conditional Heteroscedastic estimating technique), the co integration approach (based on the co-integration strategy and the Johansen and Juselius (1980) approach), and the co-integration approach (based on the Engle and Granger (1987) approach) were the methods employed in the study to estimate the Autoregressive Distributive Lag model. The study concluded that the real gross domestic product, stock market capitalization, and lending rates were not fully impacted by changes in the central bank's bank rates. For policy implication, Kenya needs a comprehensive review of its current monetary policy framework. This should be done in tandem with ongoing efforts to modernize the nation's banking and financial sector. The Monetary Policy Committee should be aware of the character and structure of commercial banks. Timing is of utmost importance when it comes to altering the Central Bank Rate. The research discovered an unsatisfactory pass-through effect when analyzing the impact of CBK on real GDP, lending rates, and stock market capitalization.
The Potential Impact of African Continental Free Trade Area on Exports, Imports, Manufactured Output, and Household Income in Kenya
(Kenyatta University, 2024-06) Mburu, John Ngugi
Regional trade agreements can affect trade, manufactured output, and household income in several ways. Regional trade agreements increase demand for commodities in a region, leading to increased trade and manufactured output. Further, Regional trade agreements can affect households through their impact on wages or consumption budget. Kenya has enacted several trade policy reforms, including harmonizing and simplifying tariff lines, removing quantitative restrictions, and joining Regional Trade Agreements to spur international trade and the local economy. These trade policy reforms have led to a substantial reduction in the average weighted applied tariff from 20 percent in 1994 to 9 percent in 2020. Despite the reforms, exports are concentrated in a few geographical regions while imports have continued to rise more than exports. The manufacturing sector has been characterized by slow growth and low productivity compared to other sectors. Further, most Kenyans have low income, and there are substantial regional disparities. This proposal employs computable general equilibrium models to investigate the potential impact of the African Continental Free Trade Area on trade, the manufacturing sector, and household income in Kenya. The proposal contributes to the existing literature in two ways; first, it uses a trade model with heterogeneous firms and monopolistic competition in the manufacturing sector. The heterogenous firm trade model captures more channels between the trade and manufacturing sectors than the competitive trade model. Second, the proposal disaggregates households in Kenya using agricultural ecological zones instead of the rural-urban scheme. Hence, it is possible to link household income to the main economic activity in a region.
Financial Strength of the Central Bank and Monetary Policy Outcomes in Common Market for Eastern and Southern Africa Region
(Kenyatta University, 2021) Muthua, Laban Kimanja; Susan Okeri; Charles Nzai
The Common Market for Eastern and Southern Africa monetary union co-operation programme was signed in 2005 by member countries and was aimed at establishing a regional Monetary Union by the year 2018. The set convergence criteria were aimed at removing macroeconomic disharmonies as a result of pursuing different economic policies by member states. The convergence criteria set include; achieve inflation target of three percent and also achieve and maintain stable exchange rates and interest rates amongst others. From monetary economics, central banks are modelled more often than not as maximizers of some objectives which include promoting stability of prices amongst other objectives. However, this viewpoint disregards the point that central bank tasks are inevitably deployed on its balance sheet and therefore affect the financial strength of the central bank. Weak central banks finances have brought to the fore the issue of financial ability of a central bank and whether a central bank is able to conduct monetary policy optimally and achieve its mandate of policy formulation. The average central bank financial strength in the region over the study period stood at 0.03, which was considered weak when compared with other regions such as European Union. The set convergence criteria were largely not achieved over the study period; average annual inflation rate stood at nine percent, exchange rate volatility and interest rate volatility stood at 25.5 and 1.05 respectively which was high when compared to other regions. This study therefore sought to empirically analyse central bank financial strength and how it affects key monetary policy outcomes namely; price stability, interest rate variability and exchange rate variability in the Common Market for Eastern and Southern Africa region using secondary country level data covering the period 2001 to 2017. Empirical studies are not conclusive on the effect of central bank financial ability on monetary policy outcomes and asserts that the relationships depends on the country or region unique characteristic, no study have been conducted in the region. The study was anchored on the theory of central bank financial strength which asserts that if the central bank financial ability, in terms of its finance, and preference are consistent, then the response of central bank will be consistent with the direction of the goals. General Method of Moment estimation technique was used to estimate the dynamic panel data regression model. Empirical results showed that inflation is inversely related to central bank financial strength. The results further indicated an inverse relationship between central bank financial strength and interest rate variability. However, the results showed that central bank financial strength has no effect on exchange rate variability. The Monetary Affairs Committee of Common Market for Eastern and Southern Africa region should consider including central bank financial strength as one of the convergence criteria, which this study has established affects monetary policy outcomes in the region. Further, the national treasuries of Common Market for Eastern and Southern Africa member countries, who are the central banks shareholders, should ensure the financial strength of central banks in Common Market for Eastern and Southern Africa region is enhanced due to its effects on monetary policy outcomes.
Macroeconomic Convergence and Business Cycles Synchronization towards a Monetary Union in East African Community
(2021) Mbui, David Kirimi; Angelica Njuguna; Jacob Omolo
The world economy has undergone unprecedented intensification of economic and political integration since the twentieth century. Developments in trade and capital account liberalization, as well as technological innovation in transport and telecommunications, have increased the international exchange of factors of production and final products and thus, integration. For regional economic blocs envisaging to form a monetary union, macroeconomic convergence is vital for deeper integration. The East African Community member countries like other regional blocs are in the process of forming a monetary union. The regional bloc has put in place macroeconomic convergence criteria as part of the targets that member states should fulfill before commencement of a monetary union. Although the bloc has put in place the criteria for regional economic integration towards a monetary union, it was unable to enter into a monetary union in 2015 as was envisaged, necessitating extension of the deadline to 2023. Attainment of macroeconomic convergence criteria by the respective member states has been slow and with significant variations. This has raised questions on the readiness of East African Community to proceed with the arrangement of the formation of a monetary union. The purpose of this study therefore, was to analyze the macroeconomic convergence and business cycles synchronization towards monetary Union in the East African Community. The study is anchored on two theories namely: the optimum currency area theory and the neoclassical growth theory. The study used time series and a set of panel data for the period 2000 to 2018. The first objective of the study was to establish the state of income convergence among East African Community member countries and Generalized Method of Moments estimation technique was employed to achieve the objective. The second and third objectives of the study were to evaluate the state of convergence of monetary variables and fiscal variable, respectively. Panel random effects model and time series model was used to achieve the second and third objectives. The fourth objective of the study was to analyze synchronization of business cycles in East African Community countries and cointegration analysis was employed to achieve the fourth objective. The key study findings were that there was empirical evidence to support the convergence in economic growth and monetary variables in the East African Community member states. There was, however, no empirical evidence of convergence of fiscal variable in East African Community member countries. Further, the study confirmed that business cycles among East African Community member countries were synchronized which is necessary for monetary union formation. The study findings, therefore, provided some evidence that East African Community member states were converging albeit slowly. The study recommended that East African Community countries ought to develop growth enhancing policies to spur economic growth thus aiding convergence of monetary and fiscal variables. This could be done through investment in infrastructure, increased credit to private sector and a reduction in interest rates. The East African Community secretariat should also be empowered to monitor the implementation and adherence to the convergence criteria by the member states as this would ensure convergence of economic growth, monetary variables and fiscal variable. Enhancement of bilateral trade among partner states through full implementation of the customs and common market protocols is necessary.
Analysis of Tax Revenue Productivity for Selected Countries in the East African Community
(Kenyatta University, 2020) Manyanza, Rhodah Mueni
The East African Community member states face challenges in mobilizing tax revenues to the required level which is suitable for economic growth enhancement and attaining fiscal sustainability. Tax reforms have been implemented in the region with the main objective of mobilizing more tax revenues. However, the tax revenue collections have been inadequate leading to persistent budget deficits which shows the inability of the tax system to generate sufficient revenues to finance public expenditure. Moreover, the member states have not been able to attain the target of Sub Saharan Africa average tax to gross domestic product of 26 per cent. Therefore, this study sought to establish the determinants of tax revenue, analyse the trends of tax effort indices and examine the effect of integration on productivity of tax revenue, for selected taxes for countries in the East African Community. The study employed non-experimental research design using time series data for the period 1984 to 2016. Appropriate tests for time series data were carried out whereby unit root test was done to determine the stationarity of the data and variance inflation factor to test for multicollinearity. Various diagnostics tests were conducted to determine the suitability of each econometric model. Regression analysis was carried out using ordinary least square. The study findings showed that the political risk factors, which included bureaucracy quality, democratic accountability and internal conflict, were key determinants of tax revenue. Gross domestic product per capita and inflation were determinants of tax revenue in all the countries; trade openness and manufacturing share in gross domestic product were key determinants of tax revenue in Kenya and Tanzania; while dependency ratio was a determinant of tax revenue in Kenya only. The efficiency of institutions was a key determinant of tax revenues in Kenya. Analysis of tax effort trends the study findings showed that, tax reforms, economic reforms and stabilization programmes, increase in agricultural output, political stability and reconstruction programmes increase tax effort. On the other hand, drought, financial crises, tax reductions and exemptions, low agricultural output, political instability and foreign aid embargo and high petroleum prices decrease tax effort. The study results showed that, formation of East African Community led to direct increase of all selected taxes in Kenya, while in Uganda it led to increase in total tax revenue, excise tax and direct tax. In terms of productivity, integration increased productivity of total tax revenue, value added tax and direct tax in Kenya, while in Uganda it led to increase in productivity of excise tax and direct tax. Integration also led to decline in productivity of total tax revenue in Tanzania, excise taxes and import taxes in Uganda and excise taxes in Kenya. The study recommends that East African Community governments should strengthen quality and efficiency of institutions through employment of qualified personnel, retraining and review of existing policies. Measures need to be put in place to control acts of civil war, civil disorder and terrorism. The East African Community governments should embrace policies that broaden tax base, improve tax administration, increase economic activities and stabilization policies to increase tax effort. Moreover, the thriving of East African Community need to be encouraged through policies such as labour mobility, improved infrastructure and simplification of regulatory framework coupled with research and development. Measures need to be put in place to control smuggled goods across borders and reduce tax fraud in custom authorities.
Effect of Government Expenditure on the Performance of Public Primary Schools in Kenya
(Kenyatta University, 2019-11) Mutuku, Stephen Mutinda
sector in its effort to achieve universal primary education and in line with the Social Pillar of Vision 2030 and global Sustainable Development Goal number four of Universal Primary Education. The budget allocation increased from 6.2 percent of Gross Domestic Product in 2002/03 to 7.4 percent in 2005/06. It, however, dropped to 5.3 percent in 2014/15 and further to 5.24 in 2017/18. As a result, Gross Enrolment Rate rose to 104 percent in 2003 from 92 percent in 2002 and rising further to 105.3 percent in 2017. As a consequence, class-pupil, and teacher-pupil ratio increased from 36:1 and 42:1 to 45:1 and 57:1 between 2002/03 and 2012/03 and further 42:1 and 55:1 in 2017, respectively. Despite the increased enrolment, the quality of education and technical efficiency levels in schools were compromised even with the positive changes in government expenditure on education were positive. Teachers concentrated more on the examination classes to boost Kenya Certificate of Primary Education results at the expense of skill acquisition in arithmetic and comprehension across all classes. Although the free primary education had shown remarkable milestones in enrolment rates, its impact on education quality and technical efficiency levels had not been assessed. Therefore, using the level of enrolment, quality of education and technical efficiency indicators to explain school performance, this study analyzed the relationship between government expenditure on education and educational outcomes. The study was guided by three objectives that involved: establishment of the effect of government expenditure on enrolment in public primary schools in Kenya; determination of the effect of government expenditure on the quality of education in public primary schools in Kenya; and measurement of the contribution of government expenditure to levels of technical efficiency in public primary schools within 47 counties in Kenya. School enrolments and class six scores were used as outcome variables. Technical Efficiency scores in the study were used to test and determine optimal utilization of school resources including government expenditures. The study used data collected from the class six scores undertook by the South and Eastern African Consortium for Monitoring Education Quality nation-wide surveys of 2000, 2004, and 2012. More data was collected from the Kenya National Examination Council and Statistical Abstracts between 1997-2018. To achieve the first two objectives, the study used fixed-effect models. For objective three, the study combined Data Envelopment Analysis with Two-Stage Least Squares regression. Results from the study showed that government expenditure and school attributes were positive for enrolment and quality of education. Further, technical efficiency had improved in all the regions by 2012. The efficiency levels were influenced by school facilities, school location, and level of government funding. The study noted the need for the government to increase its overall expenditure allocated on education to serve as a catalyst for enhancing and improving overall school performance in Kenya’s public primary schools. Moreover, the bulk of the allocated resources ought to be dedicated to the development and improvement of school facilities and equipment.
Analysis of Systemic Risk Among Asset Prices Movement, Financial System and the Real Sector Economy in Kenya
(Kenyatta University, 2019-06) Makambi, Steve Anyona
The global economy enjoyed a period of low inflation and growth during the great moderation period in mid-1980 to 2006. However, prevalence of financial crises during and immediately after the great moderation period led to the realization that asset price movement was central to financial system stability. Second, it was discovered that pursuance of monetary policy does not guarantee financial stability. In this regard, there was great uncertainty as to the policy instrument needed to safeguard financial health in the economy. Safeguarding financial stability encompasses analysis of systemic risk factors that causes turmoil in the financial and real economic sectors. Systemic risks consist of all potential risk in the economic system that may negatively affect proper functioning of the economic system. In this regard, this study sought to analyze systemic risk among asset prices movement, financial system and the real economy. Specific objectives include: (i) to analyze the systemic risk in security asset prices movement in Kenya; (ii) to analyze the systemic risk in housing asset prices movement in Kenya; and (iii) to investigate the relationship among financial risk, asset prices movement and real sector economic variables in Kenya. To address the first and second objectives, three variants of consumption-based capital asset pricing model (CCAPM) are used. These include the standard CCAPM model, habit formation CCAPM model and Two-goods CCAPM model. To address the third objective, a macro-financial model was specified and included asset prices movement, credit risk and real economy variables. Quarterly time series data from 2001Q1 to 2017Q3 was used for analysis. The macro-financial model was estimated using VAR-X model. The main findings show that consumption risk factors such as changes consumption growth, habit formation and growth of durable goods were important in determination of security and housing asset prices movement. It was further established that while Kenyan investors make asset pricing decision with the objective of smoothening lifetime consumption, they exhibit low risk aversion behavior, and this was more pronounced in the housing market. However, there was evidence to show that risk aversion increases during bad economic times. Analysis of the relationship among financial risk, asset prices movement and the real sector confirmed existence of feedback loop between the asset market and real sector of the economy on one hand; and feedback effect between real sector variables and financial risk in the Kenyan economy on the other. It was further established that financial risk is was countercyclical to business cycles and tend to increase during recession and reduce during boom periods. Based on these findings, the study concluded that while low risk aversion maybe an indication of low systemic risk in the Kenyan market evidence of adjustment of risk during recession emphasizes the need for constant monitoring of systemic risk in the asset market. In addition, existence of feedback loops among macro-financial variables and enhances the need to adopt systemic risk management policies. The main study recommendation include designation of a macroprudential authority within Central bank with clear structures and mandate to constantly monitor systemic risk in the economy.
The Effect of Institutions on Households’ Saving Behavior in Kenya
(Kenyatta University, 2018) Njenga, Moses Githinji
Savings is a vital source of investment funds, especially for developing economies. It is thus essential that internal savings capacity in these economies is increased to enhance investment financing and economic growth. Since increased reliance on international capital flows can result to economic instability, achieving a higher national saving rate is a critical macroeconomic objective for many developing countries. However, domestic savings remain low in many of them including Kenya, posing a significant development challenge. Household savings contribute a sizeable share of domestic and national savings in both industrialized and developing countries. Therefore, one set of fundamental determinants of national savings is the choices households make about their savings. However, households should not be considered fully as autonomous actors without the influence of institutions which lead to economic performance, efficiency, economic growth and development. Institutional theory of saving indicates that institutional factors significantly affect the ability to save. This study, therefore, attempted to enhance understanding of Kenya’s saving behavior through a close examination of the institutional theory of saving as a crucial framework that can assist in explaining its savings performance. The study used a multinomial/conditional probit model and a ranked ordered multinomial/conditional probit model to analyze the effect of institutions on households’ saving behavior. Data from the Financial Access National surveys (2006, 2009 and 2013) was used in the analysis. The study found that institutional factors including travel cost to access a saving option, interest rate on savings, trust, information and saving expectations influence the saving behavior in Kenya. It is, therefore, important to address the travel cost through the promotion of non-traditional saving services, offering attractive interest on savings, building trust in saving options, and enhancing financial education in Kenya. Further, enhancing formal education, income levels and reducing gender gaps are crucial in improving saving participation and performance in Kenya.
The Effect of Institutions on Households’ Saving Behavior in Kenya
(Kenyatta University, 2018-09) Njenga, Moses Githinji
Savings is a vital source of investment funds, especially for developing economies. It is thus essential that internal savings capacity in these economies is increased to enhance investment financing and economic growth. Since increased reliance on international capital flows can result to economic instability, achieving a higher national saving rate is a critical macroeconomic objective for many developing countries. However, domestic savings remain low in many of them including Kenya, posing a significant development challenge. Household savings contribute a sizeable share of domestic and national savings in both industrialized and developing countries. Therefore, one set of fundamental determinants of national savings is the choices households make about their savings. However, households should not be considered fully as autonomous actors without the influence of institutions which lead to economic performance, efficiency, economic growth and development. Institutional theory of saving indicates that institutional factors significantly affect the ability to save. This study, therefore, attempted to enhance understanding of Kenya’s saving behavior through a close examination of the institutional theory of saving as a crucial framework that can assist in explaining its savings performance. The study used a multinomial/conditional probit model and a ranked ordered multinomial/conditional probit model to analyze the effect of institutions on households’ saving behavior. Data from the Financial Access National surveys (2006, 2009 and 2013) was used in the analysis. The study found that institutional factors including travel cost to access a saving option, interest rate on savings, trust, information and saving expectations influence the saving behavior in Kenya. It is, therefore, important to address the travel cost through the promotion of non-traditional saving services, offering attractive interest on savings, building trust in saving options, and enhancing financial education in Kenya. Further, enhancing formal education, income levels and reducing gender gaps are crucial in improving saving participation and performance in Kenya.
Benefit incidence analysis of constituencies development fund spending on education bursaries in Makueni County, Kenya
(2015) Makali, B. Mulu
The Constituencies Development Fund is one of the decentralized efforts started by Government of Kenya to tackle poverty and regional imbalances in Kenya since 2003. It has allocated over 40 per cent of the resources annually to education sector including bursaries. However, doubts have been cast over time as to whether the Fund’s expenditure is effectively targeted towards meeting the needs of the poor as anticipated especially in the education bursaries that take substantial resources. This study examined the distribution of the Fund’s education bursaries; ascertained the extent to which the Fund’s spending on education bursaries was progressive, regressive or neutral; and examined the gender dimension in the benefit incidence of CDF spending on education bursaries. The study used primary data for two variables: actual CDF expenditure on education bursaries at different levels and expenditure data for households from which the users of the CDF bursaries belonged. Secondary data was collected for users (by sex) of educational bursaries provided through CDF funding. The Benefit Incidence Analysis was used as the estimation technique to arrive at empirical findings. The study established that distribution of CDF education bursaries depended a lot on the nature of engagement of the head of the household and there was an inverse relationship between level of education attained by household head and the amount of CDF bursary awarded. The study also found that there was inconsistency in average bursary awards to different quintiles demonstrating poor targeting of such bursaries making access to education difficult and costly to poorer Kenyans. Results of the study established that CDF’s spending on education bursaries was progressive for secondary education and regressive for the tertiary level of education where students from the rich households gained undue advantage over the students from poor households. On gender dimensions, the study established that CDF expenditure on education bursaries was biased towards male students. In light of the foregoing, the study recommends that the government through the CDF boards improve dissemination of information on CDF bursaries by providing adequate publicity / communication budgets to enhance inclusiveness in bursary applications; government opens as many opportunities as possible for young Kenyans to achieve higher levels of education; the government should subsidise tertiary education to guarantee access to tertiary education by the poor; and the government could as a matter of urgency address poor targeting of CDF bursaries through effective profiling of needy students. The government through the ministry of education could increase budgetary allocations for secondary school bursaries by better prioritisation and ring fencing resources. On gender dimensions, it is important that the government has the right policy framework to ensure equal opportunities are availed. In conclusion, there should be better targeting and harmonisation of all educational bursaries focusing more on efficiency, equity and effective participation
Effects of Regional Financial Intergration on Economic Growth and Intra-Regional Trade of East African Community Member Countries
(2013-03-22) Karagu, Samuel Muthoga
The study aimed at establishing the effects of regional financial integration on economic growth and intra-regional trade in East African Community (EAC) Countries. The motivation was based on the conflicting views on the effect of regional financial integration on economic growth and intra-regional trade. In order to achieve the objectives of the study, both quantitative and qualitative data were used. Data for the period 2000 to 2009 for Kenya, Uganda, Tanzania and Rwanda were employed. Burundi was not included because of insufficient data. The first objective of the study was to establish the effect of regional financial integration on economic growth in EAC. The second objective of this study was to in ~!!Itig t~ th Elff@Qt f ~gi(:mlll finill'lQi I int@grlltign gn intrll-r@gi n~J trade in EAC. System General Method of Moments dynamic panel model was employed to estimate the cross-country growth and intra-regional trade effects of regional financial integration. Regional financial integration was proxied by the following three measures; squared exchange rate of the four countries. Control variables used in the regression included lagged economic growth rate, inflation, government balance as a percentage of GDP, foreign direct investment as a percentage of GDP, corruption perception index and the Rwandan dummy variable, which took. the. value of one from the time Rwanda and Burundi joined the EAC and Zero -otherwise. The empirical results showed that regional financial integratiori' significantly stimulated the economic growth of the East African Community Countries. Regional financial integration complemented intra-regional trade among the EAC countries. The third objective was to determine whether the effect of regional financial integration on economic growth and trade differed among member countries. The study found out that the effect of regional financial integration on economic growth differed among member countries. However, the effect of regional financial integration on intra-regional trade did not differ among member countries. The study recommends the EAC coordinating committee should ensure there is effective bank supervision in the region so as to have a uniform banks spread across the region, explore ways of issuance of common bond in the region and have secondary markets for financial assets effected.
Bank efficiency, mergers and acquisitions and shareholder effects in Kenya
(2013-01-22) Muniu, J. M.; Obere, Almadi; Mburu, Tom Kimani; Odour, Jacob
Mergers and Acquisitions have become a prominent feature in Kenya's banking industry. The Central Bank of Kenya and shareholders of banking institutions in Kenya have a positive inclination to mergers and acquisitions. However, Kenya has witnessed a mix of dismal performance by some merged banking institutions and very positive performance by others. This has left stakeholders in the banking industry wondering whether mergers and acquisitions should be encouraged in the industry. This study therefore aimed at analyzing the value effects of mergers and acquisitions in Kenya's banking industry in a bid to offer a solution to this pertinent issue. The study investigated performance, efficiency and shareholders' wealth effects of banking institutions' mergers and acquisitions in Kenya between the years 1989 and 2010. Two major approaches were used in the study to determine the value effects of banking institutions mergers and acquisitions. These entailed modelling performance and efficiency effects to capture benefits streaming to the institutions and analyzing stock returns to determine shareholders' value effects. The study also determined the bank specific determinants of successful banking institution mergers and acquisitions. The study found that although mergers and acquisitions led to improved profit efficiency, large banks benefited more from improved performance than the small banks. Primary shareholders of banking institutions that engaged in mergers and acquisitions benefited from improved profit performance and stability in their wealth holding, while secondary shareholders did not experience capital gains. The study also found that the larger the merged banking institution, the higher was the probability of its success as a merger. Finaily, higher expenditure levels also contributed positively to the probability of success of mergers and acquisitions. It is therefore the recommendation of this study that incentives for value enhancing mergers be offered. The government should also encourage more investment in the banking industry specifically targeting the small banking tier. Finally, merged banking institutions should spend more on advertisement, labor and modern technology to increase their probability of success
An econometric analysis of energy utilization in the Kenyan manufacturing sector
(2012-06-11) Onuonga, S.M.; Etyang, Martin N.; Mwabu, Germano
The overall purpose of this study was to analyze the factors that influence energy utilization in Kenya's manufacturing sector and to determine the extent of substitution possibilities between energy inputs and other non-energy factors of production within the Kenyan manufacturing sector over the 1970- 2005 period.The Kenya manufacturing sector is a major consumer of commercial energy in Kenya. It is the second largest user of petroleum products and the largest user of electricity. There is hardly any evidence that shows that the sector uses biofuels. The analysis of price and non-price variables that affect the use of energy within this sector is necessary for designing policy measures that can lead to energy conservation. Information on the degree of energy substitution is important in predicting the effects of energy shortages on manufactured output and industrial employment. This study used the translog model to analyze total factor demands and inter-fuel substitutions. Estimation was done in two stages. First, the sub-energy model was estimated and an aggregate energy index computed. In the second stage, the total factor cost shares were analyzed using the estimated energy price index as an instrumental variable. Estimation in all stages was done by the use of Maximum Likelihood Method. In divergence from the previous studies in Kenya, time series properties of the data were fully investigated before model estimation was done. The study found that, price of energy, cross price, output, technology, price of capital and unexpected events (droughts, U.S.A's attack on Iraq in 2003, and multiparty elections) influenced the sector's use of energy. The results for interfuel model indicated that demand for electricity and oil in the Kenyan manufacturing sector were price inelastic and that oil and electricity are substitutes. The fuel price and the cross price elasticities were found to be small but statistically significant. These results imply that manipulation of the fuel prices alone cannot achieve much in controlling the use of energy in the Kenyan manufacturing sector. Limited substitution possibilities between electricity and oil in this sector were found. Small substitution possibilities between energy and non-energy inputs were also detected. The results for the total factor cost shares showed that demand for energy and labour were price inelastic while that one of capital had a unitary elasticity. The results further showed that energy, labour and capital were substitutes, but the degrees of substitution among the factors were found to be very low, ranging from 0.07 to 0.75. This suggested that costs of production within the sector might rise significantly as a result of the price increase of the inputs, especially of energy

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