Kenyan Tea Exports and Exchange rate volatility

Abstract

The study investigates the impact of real exchange rate volatility on Kenya's exports of tea in an export demand framework which includes foreign incomes (foreign economic demand), domestic tea prices, domestic coffee prices (tea substitute) and the RER volatility. The study applies GARCH model as a measure of Real exchange rate volatility and cointegration techniques to investigate the impact of RER volatility on Kenya's tea exports.

The study covers the post-liberalization period 1993:7 to 2008:12. The results indicate a negative though relatively significant relationship between the RER volatility and the volume of tea exported. Foreign incomes and tea prices were found to be significant variables in the study.