Refined Petroleum Entrepôt Trade and Import Dynamics on Economic Growth in Kenya
DOI:
https://doi.org/10.53819/81018102t3172Abstract
This study examined the relationship between refined petroleum trade and economic growth in Kenya over the period 1994 to 2024, with particular attention to imports and entrepôt trade, represented by petroleum exports. Kenya does not have a functional refinery; it depends heavily on imported refined petroleum for both domestic consumption and re-export to neighbouring and landlocked countries. Kenya’s dependence on imported refined petroleum, while enabling regional trade leadership, simultaneously exposes the economy to external shocks that may dampen growth. The challenge is to determine whether petroleum trade dynamics act as a net accelerator or constraint on Kenya’s economic growth. However, this aspect has not been extensively explored. Using a time-series design and based on the Neoclassical Theory of Growth, this study structured gross domestic product (GDP) growth as a function of the growth rates of labour, the capital stock, manufacturing value-added, and refined petroleum imports and exports. After confirming a long-run relationship among the variables, the Autoregressive Distributed Lag (ARDL) model was estimated using annual time-series data from the World Bank, the Kenya Economic Surveys, and the Observatory of Economic Complexity (OEC). Results indicated that the growth of refined petroleum exports was an important determinant of long-run growth, though its short-run effect was negative, suggesting that export activity may have constrained domestic production. In contrast, the growth of refined petroleum imports exhibited no measurable effect on economic growth in either the short or long run. Among control variables in the analysis, the physical capital stock growth rate emerged as the most influential driver of GDP expansion, while labour growth was negligible, reflecting Kenya’s slowing population growth and limited year-to-year labour force expansion. These findings underscore the importance of capital accumulation and export dynamics in sustaining Kenya’s long-term growth trajectory, while highlighting structural vulnerabilities in the short run. Policy implications highlight the need to strengthen Kenya’s refined petroleum export capacity by addressing trade infrastructure gaps, regional regulatory barriers, and exposure to volatile oil markets. Enhancing the value chain through diversification, logistics improvements, and support for domestic trading firms can maximise growth from entrepôt trade. Reducing import dependence requires promoting hybrid and electric vehicles, operationalising domestic refining, and diversifying energy sources.
Keywords: Refined Petroleum, Entrepôt Trade, Import Dynamics, Economic Growth, Kenya
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