| dc.description.abstract | The real exchange rate (RER) plays a central role in the
profitability of tradables, which include the agricultural
exports. In most of the developing economies, agriculture has a
larger tradable component than other sectors. The RER provides a
long term signal for resource allocation among the different, sectors of the economy and is
therefore likely to affect their performance .This study is an attempt to establish the part
played by real exchange rate of the Shilling on the performance
of agricultural exports in Kenya. It explains how the real
exchange rate of the Shilling influences the performance of
agricultural exports through its effect on the price incentive
structure.
The study presents a methodology which can be used to
measure effects of real exchange rate on agricultural exports .
The study focused on the impact of RER on agricultural export
prices relative to prices of non-traded home goods, non-agricultural
products and the local food. This study investigated
whether there is a relationship between real exchange rate
movements and implicit agricultural export tax, agricultural
export prices relative to prices of non-traded home goods ,non agricultural
products and local food during 1970-90.This study also investigated the link between the RER
movements and foreign
incomes I weather, real agricultural exports and individual export
commodities such as coffee and tea. In this study the equations
estimated were recursive and hence Ordinary Least Squares (OLS)
was the most appropriate method of estimation.
The findings of the study indicate that the real exchange
rate depreciated In real terms during the study period 1970-
90.The results also indicate that the real exchange race exerts
an independent statistical influence on most of the relative
prices considered in the study. The results further indicate that
real exchange rate exerts an independent statistical influence
on the domestic prices of the individual traditional , export
commodities. In addition, the study established that agricultural
export taxes influence the performance of agricultural
exports. The study concludes that agricultural exports in general
are responsive to changes in RER.The study established that real
depreciation of the exchange rate of the Shilling was associated
with improvement of the agricultural export prices in 1978 _There
was also an increase in real agricultural exports and volumes of
tea and coffee in the same period.
The study however could not solely attribute the Door ,
performance of agricultural exports in the 19808 to changes in
real exchange rate of the Shilling. During this period the real
exchange rate exhibited an upward trend (i.e. depreciated in real
terms) while the real agricultural exports had a downward
trend. Therefore the study concludes that, RER partly explains
the performance of agricultural exports. The RER is also a
partial indicator of the competitiveness of the agricultural
exports sector.
Various policy implications are drawn from, the results of
the study. The study recommends real exchange rate as that of the
critical variable that needs to be monitored by policy
makers. The aim should be to maintain the RER at a level that can
encourage agricultural exports sector and economic growth. The
study also recommends a low tax policy on agricultural explores
to -induce the farmers (producers) to put more effort on
agricultural exports. | en |
