Performance Of The Kenyan Cut Flower Exports; An Empirical Investigation (1986-2018)

Abstract

Kenyan cut flower sector is leading among the horticultural exports. The sector is contributing significantly to economic growth through the creation of employment opportunities, foreign exchange earnings, and poverty eradication. Cut flower exports to major destinations continues to grow in volume and value. Several factors in the micro and macro environment have contributed to this performance. This study sought to examine the specific influence of foreign income, real exchange rates, inflation, transport costs, and trade liberalization on the volume of cut flower exports. The study used secondary time-series data for 33 years from 1986-2018. Cointegration analysis results promoted the use of Vector Error Correction Model. Pre-and post-diagnostic tests were used to ascertain the validity of the VECM results. Further ADF test was used to test for stationarity of variables as non-stationarity leads to spurious regression. The post-diagnostic tests conducted included normality and autocorrelation tests to ensure fitness and reliability of the model. The study found that the foreign income, real exchange, inflation, transport costs, and trade liberalization significantly influences the volume of cut flower exports in Kenya in the long run. The findings of the study recommend the adoption of government policies encouraging the expansion of foreign markets. These policies should encourage more branding and product differentiation, increased cargo space, and reduced freight charges. Additionally, the government should adopt policies geared towards the expansion of regional markets where the transport costs may be cheaper.