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Article Title

FORECASTING KENYA’S MANUFACTURING OUTPUT WITH TIME SERIES DATA

Abstract

Manufacturing sector is a major source for jobs and growth in Kenya. The sector’s evolution shows characteristic of growth cycles, with approximate slump and boom periods. Prediction of manufacturing production is crucial in designing appropriate interventions to increase the sectors contribution to employment and growth. The paper uses historical manufacturing output data to forecast possible future realizations of manufacturing output through a trend, dynamic autoregressive and a multivariate time series models. Though, the trend model predicts a deterioration of manufacturing output in the next three years, a dynamic AR model predicts a stable 3 percent growth rate for the period. But, a recursive model which incorporates structural dependencies between output and factor inputs, and the influences of macroeconomic variables provides 4.3 percent growth in 2012 which that rises to 5 percent in 2014. Probable causes of changes to manufacturing output could expected from improvements in productivity probably due to innovations or adoption of superior technologies, or on the downside, vast external shocks to the country that may interrupt regional markets for Kenya’s manufactured products.

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