Wawire, NelsonMakori, SteveKamau, Penina Waithira2015-01-282015-01-282015-01-28http://ir-library.ku.ac.ke/handle/123456789/12112Masters in Economics-Department of Applied Economics, 48p. October 2014There was continued increase in imports volume and shrinking of exports. Due to government preoccupation with mobilizing external financial assistance, debt increased tremendously. The problem of growing population in Kenya, heavy importing and borrowing has led to current account deficit. Information on import demand elasticities was key to informing the tax policies that were to guide the taxation of imports and deciding optimal imports. The specific objective of the study were to estimate price elasticity of demand for imports, income elasticity of demand for imports and foreign exchange reserve elasticity of demand for imports The study analyzed the import demand elasticities using time series data from 1970 to 2013. Secondary data was used in the study. Data was collected from Central Bank of Kenya and Kenya National Bureau of Statistics documents. A multiplicative import demand function was estimated from which import elasticities were determined. The results show that income, relative price and foreign exchange reserve affect imports value. Long run elasticities were estimated and the coefficients of the variables were statistically significant expect for relative price. All the long run elasticities were found to be inelastic. Value of imports, relative price, income and foreign exchange reserve were co integrated in long run. The Kenya Revenue Authority can increase revenue collection from import duties. This was because import income elasticity for Kenya in long run was inelastic implying that imports responds to income is less than proportional. Export promotion policies should be encouraged as they increase foreign exchange reserves. This is because the results show that import demand respond to foreign exchange reserve. Borrowing efforts should be discouraged given that foreign exchange reserves elasticity was inelastic. This would improve balance of payments due to reduction in debts. Government can utilize imports of the previous period to forecast levels of tax revenue and also determine import behavior. This was because the lagged value of imports highly influences the demand of imports in Kenya. Key words: Import demand elasticities, GDPenThesis