Research Article Mutuku and Mbithib, Res J Econ 2017, 1:2 All articles published in Research Journal of Economics are the property of SciTechnol, and is protected by copyright laws. “Copyright © 2017, SciTechnol, All Rights Reserved. Research Journal of Economics a SciTechnol journal International Publisher of Science, Technology and Medicine What Drives Import Flows, Do Import Standards And Verifcation For Conformity Matter? A Panel Gravity Model for Kenya Cyrus Mutuku* and Benard Mbithi Abstract This study sought to determine the factors that drive import fows into Kenya. It also investigated the effect of imports standards requirements and verifcation procedures on imports fows. Specifcally, the aim was to determine whether import standards are trade catalysts or technical trade barriers. The study used a panel gravity model consisting of 14 countries where Kenya sources 80% of its imports for the period spanning 2012 to 2016 on quarterly basis. Dummy variables were used to capture verifcation procedures implemented on December 2015, regional integration and sharing of borders. Data was obtained from IMF. Firstly import standards are a technical trade barrier probably due to lengthy procedures involved in obtaining certifcate of conformity. Secondly import fows in Kenya signifcantly depend on Kenyan economic performance (GDP), GDP of exporting economies and sharing of borders. A 1% increases in Kenya GDP increases the value of imports by almost 0.17% to 0.39%. In addition, East Africa Community has created a trade diversion other than the expected trade creation effect. Keywords Kenya; Non technical trade barriers; Gravity model; Imports verifcation standards Introduction Kenya has a trajectory of trade policy reforms ranging from substitution of imports, liberalization of trade through Structural adjustment programme, exports promotion policy and current multilateral trade agreements. Te import substitution strategies aimed at industrialization through promotion of infant industries. Unfortunately, the infants did not penetrate international markets as expected. In early 1980s, under structural adjustment reforms and due to pressure from the multi-lateral fnancial institutions, Kenya shifed from imports substitution strategy and adopted exports promotion to address deteriorating exports performance. Te principal exports promotions strategies put in place included Manufacturing under Bond, Exports Processing Zones, (EPZs) in 1990 and the rejuvenation of the Kenya Export Trade Authority. Te EPZs were subject to *Corresponding author: Cyrus Mutuku, Department of Economics, University of Nairobi, Nairobi, Kenya, E-mail: mutukucmm@gmail.com Received: December 07, 2017 Accepted: December 18, 2017 Published: December 25, 2017 a tax holiday of ten years, import duty exemptions on processing equipment investments and from payments of VAT. Firms receive exemptions from import duties when their outputs are exported under MUB. Likewise, they receive exemptions from VAT on all their inputs. Afer the year 2000, the key trade policy measures for Kenya included treaties with the East African Community(EAC), Common Market for Eastern and Southern Africa (COMESA) and the Intergovernmental Authority on Development, (IGAD). Te EAC has achieved signifcant market growth for member country goods and services. It has made Market expansion possible through instruments such as EAC Customs Union Protocol and Common Market Protocol. However, its full potential has been constrained by the slow pace of implementation. In 2015, Kenya implemented Pre-Export Verifcation of Conformity (PVOC) program for all imports. Te program is applied to regulate goods/products in the respective exporting countries to ensure that they comply with the applicable Kenyan Technical Regulations and Mandatory Standards. Te general objectives of applying Pre-Export Verifcation of Conformity (PVOC) program is to ensure quality of products, health and safety, protect the environment for Kenyans and meet requirements of the Kenya PVOC. Te key concerns for the PVOC program are to curb undervaluation and concealment of imports. Terefore, all consignments which are subject to the PVOC must obtain a Certifcate of Conformity (CoC) issued by authorized verifcation agents. Empirical analysis has classifed import standards measures under non–tarif barriers of trade (NTB) known as Technical Barriers to Trade (TBT) [1,2]. TBT mainly includes standards, conformity assessments, certifcation, and technical regulations that are introduced for environmental protection, safety, national security and consumer information. Tere are two opposing arguments on the efect of TBT on trade fows. One postulates that TBT promotes trade while the other is to the contrary. Teoretical argument linking TBTs to reduction of imports and tax revenue has that if a country imposes a TBT; it raises both the fixed cost and variable cost to exporters of other countries. Exporting frm’s variable cost of production increases as they invest in new technology and inputs so as to improve their product quality to meet the new standards. In addition, they incur cost on material investment in inspection equipment, quarantine process, and the coordination of technique experts to pass the examination consequently raising the fixed cost for exporting to the TBT imposing country. Hence, the total cost of production raises leading to a decline in both export extensive margin (the number of exporting countries) and intensive margin (the export volume or value of each exporting country) [3,4]. On the other hand, the theoretical argument linking TBTs to increase in imports hence increase in tax revenue postulates that TBTs inform consumers that the imported products have met specifc standards consumers’ demand, thereby raising both the extensive and intensive margins. Quality attracts demand of importing country, changes consumer preference, and increases imports especially in