Working papers

Spatial Inequality and Informality in Kenya’s Firm Network

with Peter Wankuru Chacha, Vatsal Khandelwal, and Benard Kipyegon Kirui | e-mail for draft

The spatial configuration of domestic supply chains plays a crucial role in the transmission of shocks. As a result, transaction-level tax records have become a valuable source to map domestic formal sector firm networks. This paper explores to what extent a sizable informal sector might bias what we can learn from data on the formal firm network in Kenya. First, we document stylised facts about formal firm-to-firm trade in our setting, revealing a high degree of spatial concentration in the network. 90% of the cross-regional variation in trade volumes can be attributed to the extensive margin of trade, the location of firms and the number of firm-to-firm relationships they form. Using data from the population census and national accounts, we show that informality is particularly prevalent in downstream economic activities and smaller regional markets. We structurally estimate a network formation model to investigate how accounting for informal firms affects spatial inequality in firm-to-firm trade and the propagation of shocks. We find that accounting for informal firms in a predicted counterfactual network increases the outdegree of firms in regions with (i) the highest levels of informal activity and (ii) regional and national trading hubs. Further, the higher the incidence of informality in a sector and region, the more we underestimate its vulnerability to shocks.

Selected Work in Progress

Spatial diffusion of services in Kenya

with Peter Wankuru Chacha, Luke Heath Milsom, and Benard Kipyegon Kirui

Published Papers

Supply chains in times of crisis: Evidence from Kenya’s production network

World Development 173 (2024)
with Peter Wankuru Chacha and Benard Kipyegon Kirui
Published version | Accepted manuscript | Replication code

Trading relationships between suppliers and buyers play a key role in transmitting both local and international shocks. We use transaction-level data from Kenya to study the relevance of a firm's domestic network position and links to international supply chains in determining its trajectory during the COVID-19 crisis. We document that firms with high exposure to import and export markets tend to be larger, older, and employ more workers. The specialisation of direct importers, often intermediaries, on international markets made them very vulnerable to the initial COVID-19 shock. Exporters, one-third of whom operate in primary sectors, experienced a less severe decline in sales. We find that both importers and exporters adjust their domestic supply chains in response to international trade shocks - before and during the crisis alike. Sourcing from international markets does not crowd out domestic purchases, while sales abroad and at home can act as substitutes. Diversified domestic supply chains helped firms to mitigate the impact of the COVID-19 crisis and recover more strongly.

Taxing investments in the Asia-Pacific region: the importance of cross-border taxation and fiscal incentives.

World Tax Journal 8(2), pp.193-223 (2016)
with Katharina Nicolay
Published version | ZEW working paper

Other research output

Changing mobility patterns and food price dynamics during the COVID-19 pandemic in Kenya and Uganda

with George Kariuki Kinyanjui and Doreen K. Rubatsimbira
Bank of Uganda working paper | IGC report | Policy brief

Real-time price data collection during crises is crucial for informing policy responses, but can be challenging due to fast-changing consumption and mobility patterns. We adopt a crowd-sourcing approach to investigate the impact of the COVID-19 pandemic on prices of essential food items in Kenya and Uganda. Combining this price data with information on changes in mobility patterns, we find that a 10 percentage point reduction in mobility leads to a 0.3 percent and 1.5 percent increase in food prices in Kenya and Uganda, respectively. Our results are robust across a variety of empirical specifications, but we cannot conclusively rule out a zero effect in Kenya. Furthermore, our findings indicate that mobility patterns continue to impact price dynamics beyond the initial shutdown phase.

Mapping Kenya’s production network

with Peter Wankuru Chacha and Benard Kipyegon Kirui

In brief
We discuss how tax returns can be used to map Kenya's domestic firm and describe the network's fundamental properties. Where possible we document how those properties align with firm networks in other contexts for which similar data are available.