ESTIMATING INFORMAL TRADE STATISTICS USING RATIO ESTIMATION METHOD: A CASE STUDY OF KENYA

Abstract

Informal Cross Border Trade (ICBT), macroeconomic statistics in nature, forms bulk of the unrecorded economy. Unrecorded ICBT statistics leads to incomplete macroeconomic statistics despite the international best practices recommendations that compilation of macroeconomic statistics should be comprehensive and complete. ICBT has a positive social impact such as job creation and poverty alleviation especially to the rural population and has the potential to support Africa’s on-going efforts of poverty eradication, if properly harnessed. This study aimed at determining the magnitude of unrecorded trade between Kenya and her neighbours, in a bid to derive an estimator which will be able to estimate informal trade statistics. These estimates will be used to adjust the formal external trade statistics resulting to a comprehensive, reliable, consistent and complete external trade statistics. A series of cross border surveys conducted by Kenya National Bureau of Statistics on selected border station for the years 2011 to 2016 informed our data source. Preliminary results showed that most of Kenya’s informal exports were destined to Tanzania and Ethiopia through Isebania, Mandera and Moyale border stations. These commodities were mainly industrial in nature such as cooking fats and oils, wheat flour, cement and paraffin. Informal imports on the other hand were sourced from Uganda and Tanzania through Busia, Isebania and Malaba. These were mainly agricultural such as dry maize, bananas, beans, fish and fruits. All these were mainly transported by bicycles, push/hand carts and motor cycles. The ratio estimator of formal and informal trade between the Kenya and her neighbours was computed. Since a positive correlation exists between the two trade types and given the reliability and consistency of the formal trade, the value of informal export or import can be estimated as a function of the estimator and the respective formal trade at any given period. This estimation method will have minimized the seasonality effects and the inclusion of these estimates will narrow the completeness and comprehensiveness gap of the country’s economy.