Anti-counterfeit measures and their effects on balance of trade and performance of the manufacturing sector in Kenya
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Date
2024-11
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Kenyatta University
Abstract
Manufacturing is one of the most important economic sectors in Kenya. Although the sector is expected to propel Kenya into an industrialized middle-income nation and reduce the trade deficit by 2030, the country’s gross domestic product decreased from 13 percent in 2010 to 8 percent in 2022. Presence of counterfeit goods in the market is a persistent element that challenges growth of the sector. Counterfeit goods cost Kenya's manufacturing industry approximately 68 billion Shillings annually in lost sales, 70 percent of which are reported to occur in the energy, electrical and electronics, building, mining and construction, plastic and rubber, textiles and apparels, metal and allied sectors. The dismal performance of the manufacturing sector may have contributed to poor performance of Kenya’s external balance. Kenya experienced a trade deficit of USD 11.4 billion in 2023. The Kenyan government established the Anti-counterfeit Authority to counter trade in counterfeit goods. The authority’s anti-counterfeit measures involve public awareness and enforcement of the anti-counterfeit law. Despite the budget allocations to these efforts, counterfeit goods continue to command a substantial share of the goods market in Kenya. Increase in counterfeit goods has the potential of stifling the manufacturing sector and compromise government’s effort in reversing the declining trend in the manufacturing sector. Counterfeit goods can also have adverse effects on balance of trade by discouraging production for exports. A study on counterfeit goods and effectiveness of anti-counterfeit measures was deemed necessary to understand the factors causing demand for counterfeit goods, the effect of anti-counterfeit measures on manufacturing and balance of trade in Kenya. The objectives of the study were to: examine the determinants of demand for counterfeit goods in Kenya, determine the effect of anti-counterfeit measures on the performance of the manufacturing sector in Kenya, and establish the effect of anti-counterfeit measures on balance of trade in Kenya. The study used time series data for the period 2010 to 2020. The data was obtained from publications of the Anti-Counterfeit Authority, the Kenya National Bureau of Statistics and the Central Bank of Kenya. The study adopted an Autoregressive Distributed Lag model to estimate the first and second objectives. A structural vector autoregressive model was used to estimate the third objective. The results showed that an increase in public awareness by one percent leads to decrease in value of counterfeit goods seized by 3.73 percent ceteris paribus. In addition, an increase in budgetary allocation enforcement of the anti-counterfeit law leads to a decrease in value of counterfeit goods seized by 3.44 percent ceteris paribus. The results showed that an increase in public awareness by one percent leads to increase in value added by the manufacturing sector to the GDP by 0.33 percent ceteris paribus. In addition, an increase in budgetary allocation to enforcement of the anti-counterfeit law leads to a decrease in the value added by the manufacturing sector to the GDP by 0.24 percent ceteris paribus. The impulse response function showed that shocks to logarithm of expenditure on public awareness regarding the effects of counterfeit goods by one standard deviation increases the balance of trade for the first two periods. The findings imply that anti-counterfeit measures reduce counterfeit goods thus improving the manufacturing sector’s output and balance of trade. The study therefore recommends that government should allocate more funds to the Anti-Counterfeit Authority for effective implementation of their mandate.
Description
Thesis submitted to the school of business, economics and tourism in partial fulfillment of the requirements for the award of the degree of doctor of philosophy in economics of Kenyatta University, November, 2024
Supervisors:
Prof. Nelson H. W. Wawire (phd)
Dr. Perez a. Onono (phd)