The Effects of economic integration on tourism performance in Kenya and the moderating role of exchange rates (evidence on East Africa)

Abstract

Tourism serves as a crucial service export and foreign exchange earner for many developing countries, including Kenya, where its contribution has recently declined relative to diaspora remittances and agricultural cash crops like tea and coffee. Despite being Africa's second-largest growing industry, generating $38 billion dollars for the continent in 2019 according to UNWTO statistics, Kenya's tourism sector faces challenges. The East African Community (EAC) aims to enhance regional cooperation across economic, political, and social dimensions, raising questions about the impact of economic integration on service industries, particularly tourism. This study examines Kenya's tourism performance from the collapse of the EAC in 1977, revival in 2001 to 2023, focusing on a quantitative analysis using time-series data. By utilizing ADRL regression, the research evaluates the relationship between exchange rates and various indicators of economic integration, such as intra-regional trade intensity and price convergence. The findings indicate that while intra-regional trade intensity and exchange rates negatively affect tourism performance in the short term, a positive long-term trend emerges. Conversely, price convergence shows minimal positive short-term effects and relatively negative long-term impacts. Overall, the study highlights the progress made towards moderate economic integration in Kenya but underscores the need for deeper collaboration with neighbouring countries. Enhancing tourism through diversified services and robust cooperation is essential for maximizing economic integration benefits, ultimately contributing to sustained growth in the broader economic, social, and political landscape.