This study seeks to highlight the level of income inequality in Kenya and its implications on
various poverty reduction policies. The 2003 Kenya SAM is used to develop a multiplier
simulation model which tracks the linkages among demand-driven shocks and economic growth,
income generation, and income distribution for different economic groups.
In the first section of our multiplier analysis, we determine the major sectors that can be used to
promote generalized economic development in Kenya. The trade, hospitality (hotels and
restaurants), manufacturing, and agricultural sectors play the highest role in the development of
Kenya’s domestic economy. We further decomposed the global multipliers to highlight in
microscopic detail the linkages between each household group’s income and productive sector
accounts (agricultural and manufacturing) whose income has been exogenously injected.
The empirical results from our multiplier analyses show that due to high inequality in Kenya,
stimulation of growth in agricultural and manufacturing sectors mainly benefit the richest urban
household deciles who own most of the factors of production. Kenya will need to focus not only
on economic growth but also on reducing inequality in order to effectively address the country’s
poverty. Based on the major sectors selected for this study, agriculture has higher direct effects on
the incomes of rural households, while manufacturing has higher direct effects on the incomes of
urban households.