Tourism and Poverty Reduction in Kenya: A Dynamic CGE Analysis

The aim of this paper is to investigate the claim that tourism development can be the engine for poverty reduction in Kenya using a dynamic, micro-simulation computable general equilibrium model. The paper improves on the common practice in the literature by using the more comprehensive Foster-Greer-Thorbecke (FGT) index to measure poverty instead of headcount ratios only. Simulations results from previous studies confirm that expansion of the tourism industry will benefit different sectors unevenly and will only marginally improve poverty headcount. This is mainly due to the contraction of the agricultural sector caused the appreciation of the real exchange rates. However this paper demonstrates that the effect on poverty gap and poverty severity is nevertheless, significant for both rural and urban areas with higher impact in the urban areas. Tourism expansion enables poorer households to move closer to the poverty line. It is concluded that the tourism industry is pro-poor.