Abstract:
The Kenyan economy has in the past benefitted from textile industry. Through economic development and employment creation in Kenya. However, with recent government development agenda of empowering manufacturing sector through reviving the industry, amid substantive challenges including establishing new textile firms, innovating new textile manufacturing techniques, high production costs to remain competitive in East Africa region and to large extent in the global arena. This study investigated the nature of scale economies and input relationships for the industry using a cost function with capital, labor, domestic intermediate goods, and imported intermediate goods as inputs. Results showed that there exist significant economies of scale and that major textile inputs are substitutes although some intermediary inputs are compliments. This implies that the textile industry faces challenges in its endeavor to be internationally competitive where input prices in the domestic market are sensitive to prices of imported intermediate inputs. It is recommended that the government should participate actively in the growth of textile industry through import substitution and tax concession policies in imported raw materials.
