The dearth of empirical evidence across developing countries on whether trade liberalization would lead a country to specialize in dirty industries to exploit its comparative advantages in trade, motivates this thesis. The thesis uses the case of Kenya, - a lower-middle income country with the largest economy in Eastern Africa- to investigate two fundamental questions: (i) will Kenya's realization of its comparative advantages in trade, relative to those of its neighbors, heighten the risk of specialization in dirty production? and (ii) will Kenya's trade competitiveness be adversely impacted by its implementation of an environmental tax that directly targets polluting energy inputs? Compared to a 2009 base-run, the impact of three alternative ex-ante policies were quantitatively evaluated: further trade liberalization, alone; pollution abatement, alone; and joint implementation of these policies. A static computable general equilibrium (CGE) model for Kenya, that is theoretically founded on the tradition of CGE models for open developing economies by the World Bank (Dervis, et al., 1982), was developed to investigate these fundamental issues. Deepening Kenya's trade liberalization, alone, was found to have beneficial effects on output, with the risk that the country could intensify its specialization in dirty industries. In comparison, an environmental policy in the form of a tax on energy inputs, alone, reduced pollution in energy-intensive industries, but was costly in terms of falling output. Potential worsening of Kenya's environmental situation might, nevertheless, be mitigated without adversely affecting output through a mix of policy interventions. In conclusion, even if political commitments for a cleaner environment were in place in Kenya, which is far from certain, further trade liberalization without concrete policy interventions to abate industrial pollution, might create or exacerbate environmental degradation.


Economics Department

Degree Name

MA in Economics

Graduation Date


Submission Date

January 2017

First Advisor

Elshennawy, Abeer

Committee Member 1

Atallah, Samer

Committee Member 2

El Safty, Ahmed


124 p.

Document Type

Master's Thesis


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The completion of this thesis could not have been possible without the contributions of many people. My love and gratitude go to my wife, and the rest of my family, for supporting me in many ways, including their understanding for my lengthy absence from home, during my graduate studies at the American University in Cairo (AUC). The finalization of this thesis was made possible by the continued, and untiring support by my thesis supervisor, Dr. Abeer Elshennawy. Dr. Elshennawy’s patience in working with me is highly appreciated. Many thanks go to the rest of my thesis advisory committee: Dr. Samer Atallah, and Dr. Ahmed El Safty. I express my deepest appreciation for the guidance and advice that my thesis advisory committee provided me over the course of this project. My sincere gratitude go to Dr. Adel Beshai, Professor of Economics and Director of Graduate Studies. Dr. Adel Beshai, encouraged me to embark on this most rewarding journey, and has guided me along the way. I am also deeply indebted to the rest of the faculty and my colleagues at the Economics Department of the AUC. Special thanks go to Ms. Amira Bishara and Ms. Heba Halim for their invaluable administrative support, and to Ms. Heba Halim, in particular, for her assistance during the course of my thesis research work. A big thank you, to my many friends, who have supported me, in many ways, over the course of my studies at the AUC. Furthermore, I am extremely grateful to have been a recipient of a research grant from the AUC’s School of Business that facilitated the completion of this study. Last, but not least, I send big thanks to the Kenya National Bureau of Statistics (KNBS), for granting me access to the Kenya’s 2009 balanced micro Social Accounting Matrix (SAM), that made this research possible.