The Effects of Changes in Exchange Rate on Horticultural Exports Earnings in Kenya
Abstract
The study evaluated the effect of real exchange rate (RER) on the horticultural exports.
Empirical evidence revealed that when the RER increases, it implies that the domestic currency
depreciates against the foreign currency causing the Kenyan horticultural exports to be cheaper
in the international market. As a result, the exports earners more. The study employed the
ARDL model after finding that the series were integrated bot at level while other at first order.
After conducting the ARDL bound test, the study established that real exchange rate had no
co-integration among the other variables in the model. Having establish absence of long run
relationship, the study settled for the ARDL in the short run. However, the results were
statistically insignificant in line with the Fountas and Aristotelous, (2005)’s findings that more
often than not the short run effect of the real exchange rate on the exports in general is usually
insignificant. Theoritically, the insignificant findings is not a surprise especially for the risk
averse exporters. Increasing the utility of export by increasing the average profits among the
risk averse exporters can be approximately offset by te utility decline forllowing the increased
uncertainitoes in profits. As a result, a change in the exchange rate volatility can lead in no
effect on the trade and in this case horticultural exports. The study also establsihed that for this
particular data, there was no unidirectional causality from exhange rate to horticultural.
However, the study established the the horticultural exports granger caused the real exchange
rate. The study recommendeated the gorvernment to put in place monotoring measures to
ensure stability in the real exchange rate that would insitil confidence among the riskl averse
exporter.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Economics [237]
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