The Influence of Petroleum Products, Transport and Communication on Kenya's Balance of Payments

Abstract

A major challenge to the Kenyan economy is the persistence disequilibrium in the balance of payments. This study examined the relationship between transport and communication output, import value of petroleum products, FDI, domestic credit and their influence on balance of payments in Kenya over the period 1980-2012.  By using co integration and error correction multivariate framework, it was found that output from transport infrastructure, communication investment, value of petroleum products, domestic credit and FDI were co integrated. The results showed that all the variables were significant but domestic credit and value of petroleum products were negatively related to net balance of payments, while FDI and Transport &Communication output were positively related.

 This implies that to correct the disequilibrium in balance of payments in Kenya, equal attention to transport and communication and the utilization of the oil reserves in the country is key instead of solely relying on monetary tools to attain stability in the country's balance of payments adjustment.