Effect Of Exchange Rate Changes On Labour Productivity Growth In Kenya (1985-2018)

Abstract

The main purpose of this study was to establish the effect of exchange rate changes on labour productivity growth in Kenya (1985-2018). Specifically, the study tested the granger causality between exchange rate and labour productivity growth in Kenya; examined the influence of intervening variables public capital, private capital and terms of trade on labour productivity growth in Kenya and recommended on suitable policy considerations in enhancement of labour productivity growth in Kenya. The study employed secondary data where the information gathered covered period of 1980 to 2018. The study employed a time series data. From the analysis of the findings, it was concluded that exchange rate had a positive but insignificant effect on labour productivity in the short run. Also, it was concluded that public and private capital influenced labour productivity. Both private and public capitals had significant effect on labour productivity. It was also established that labour productivity in Kenya was not significantly influenced by the exchange rate. Moreover, it was concluded that the statistically insignificant relationship between exchange rate changes and labor productivity was as a result of low levels of adoption of technology and human capacity development among Kenyan firms compared to multinational corporations, as technology increases the productivity of goods destined for export. Thus, it was recommended that the government of Kenya should implement monetary policies that put exchange rate on a competitive edge. It was equally recommended that the government should stimulate the economy through investment on public capital formation. This will go a long way in improving exchange rate and consequently improve terms of trade and boost labour productivity