Exchange Rates and the Volume of Imports in Kenya

Abstract

Finding out how Kenya's trade level and system from the perspective interact was the study's main goal. The investigation particularly examined the connection test of exchange rate and import volume in Kenya so that to examine the effects of intervening variables including domestic income, terms of trade, and pricing, as well as to offer policy concerns for those variables. The secondary data collected for the study spans the years 1980 through 2020. The UN published directory, IFS, KNBS, global development indicators and the IMF which provided the data for the study. The study used time series analysis (KNBS). The investigation results demonstrated that the exchange rate affected Kenya's import volume. As the value of Kenyan shillings comparative to the US dollar rises, so does the volume of imports. The ability of local businesses to purchase items from other nations is implied by a growth in the value of the shilling. In contrast, a decline in the worth of the shilling results in a decrease in the volume of imports as local businesses lose their ability to finance the importation of goods into the nation. According to the study, terms of trade and GDP had an impact on the connection between Kenya's import volume and the exchange rate. When the terms of trade are advantageous, imports increase. Conversely, when the conditions of trade worsen, export quantities decline and the value of Kenyan Shillings falls. A rising GDP indicates a strong Kenyan shilling in relation to the US dollar, which causes imports to rise. As a result, while creating decisions and policies, it is important to take into account both the GDP and terms of trade give the link between the exchange rate and the volume of imports. Kenya was therefore recommended to decrease its imports while raising its exports by depreciating its currency. Due to the deflation of the domestic currency and the increasing competitiveness of Kenyan goods on international markets, the amount of imports would decline. Export growth will support the development of the nation's economy. Therefore, in order to raise inflation in the country, the rate of currency devaluation should be maintained. The research also recommended that Kenya's government bargain for improved terms of trade for our agricultural products with both present and potential new markets. The Kenyan government has to reopen markets for our items like khat and increase exports of goods with value addition. The increase in Kenya's exchange rate should be adopted as a instrument to improve trade agreements and, as a result, promote exports.