Real Exchange Rate Volatility and Exports in Kenya: 2005-2012

Manaseh Otieno Oiro

doi:doi:10.11648/j.jwer.20150405.12

| Peer-Reviewed

Real Exchange Rate Volatility and Exports in Kenya: 2005-2012

Manaseh Otieno Oiro

Published in Journal of World Economic Research (Volume 4, Issue 5)

Received: 3 September 2015 Accepted: 24 September 2015 Published: 19 October 2015

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

The real exchange rate has proven to be an important factor in international trade because it is expected that exports react to real exchange rate movements with respect to the characteristics of the importing and exporting countries. Exchange rate volatility increases uncertainty of profits on contracts denominated in foreign currency and subsequently dampens trade and economic growth. This study investigated how real exchange rate volatility affected exports of key Kenyan commodities to the European Union and United Kingdom, namely; tea, coffee and horticulture to the European Union. The presence of exchange rate volatility was determined using the GARCH model. A Bounds testing and Autoregressive Distributed Lag model was used to establish the presence of a long run relationship between exchange rate volatility and commodity exports. Findings revealed that exchange rate volatility affected tea exports to the UK and horticulture exports to the European Union. Foreign income played an important role in explaining tea and coffee exports to the UK and EU respectively. It is recommended that greater value addition be done to tea and coffee exports to ensure that their demand increases with increase in foreign incomes.

Published in	Journal of World Economic Research (Volume 4, Issue 5)
DOI	10.11648/j.jwer.20150405.12
Page(s)	115-131
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Trade Liberalization, Volatility, Exports

References

[1]	Arize, C. A., Osang, T and Slottje, J. D. (2000). Exchange Rate Volatility and Foreign Trade: Evidence from Thirteen LDCs. Journal of Business and Economic Statistics, vol 18, No.1 pp 10-17. American Statistical Association.
[2]	Berthou, A. (2008). An investigation on The Effect of Real Exchange Rate Movements on OECD Bilateral Exports. Working Paper Series No. 920/July 2008, Kaisestrasse 29 60311 Frankfurt am Main, Germany.
[3]	Bonroy, O., Gervais, J. P., and Larue, B. (2007). Are Exports a monotonic function of exchange rate volatility? Evidence from disaggregated porks. The Canadian Journal of Economics Vol 40 No.1 (Feb 2007) pp 127-154. Canadian Economics Association.
[4]	Chege, M. S., Mbatia, O. L. E., and Nzuma, M. J. (2014). Effects of Exchange Rate Volatility on French Beans Exports in Kenya. Journal of Agricultural Economics, Extension and Rural Development, Vol 1(1) pp 001-012 Spring Journals, Jan 2014.
[5]	Colacelli, M. (2008). Export Responses to Real Exchange Rate Fluctuations: Development status and Exported Goods Effects. Barnad College, Columbia University.
[6]	De Grauwe, P (1987). Exchange Rate Variability and the Slowdown in Growth of International Trade (May 22, 1987). IMF Working Paper, Vol., pp. 1-25, 1987.
[7]	Dincer, N. and Kandil, M. (2009). The Effects of Exchange Rate Fluctuations on Exports: A Sectoral Analysis for Turkey. State Planning Organization, Necatibly cad. No.108, Yucetepe, Ankara, 06 100 Turkey; International Monetary Fund, Washington DC, USA. June 2009.
[8]	Eichengreen, B. and Gupta, P. (2012). The Real Exchange Rate and Export Growth: Are services Different.
[9]	Essien, E. B., Dominic, A. O., and Sunday, E. R. (2011). Effects of Price and Exchange Rate Fluctuations on Agricultural Exports in Nigeria. International Journal of Development Research and Investment, Vol 2 No.1 April 2011.
[10]	European Central Bank (2008) An Investigation on the Effect of Real Exchange Rate Movements on OECD Bilateral Exports Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.
[11]	Fang, W., Lai, Y. H., and Miller, S. M. (2006). Export Promotion Through Exchange Rate Depreciation or Stabilization? Southern Economic Journal, Vol.72 No.3 (Jan 2006) Pp 611-626.
[12]	Freund, C. and Pierola, D. M. (2008). Export Surges: The Power of Competitive Currency. The World Bank Development Research Group and Poverty Reduction and Economic Management Network.
[13]	Geoffrey Gertz (Undated). Kenya’s Trade Liberalization of the 1980s and 1990s: Policies, Impacts and Implications.
[14]	Greenaway, D., Kneller, R. and Zhang, X. (2010). Exchange Rate Uncertainty and Export Decisions in the UK. Journal of Economic Integration, Vol. 25, No. 4 (December 2010), pp. 734-753Published by: Center for Economic Integration, Sejong University.
[15]	Gujarati, D. N., Porter, D. C. and Gunasekar, S. (2009). Basic Econometrics. Fifth Edition. Tata McGraw Hill Education Private Limited, New Delhi.
[16]	Haile, MG and Pugh, G. (2011). Does Exchange Rate Volatility Discourage International Trade? A Meta-regression Analysis. The Journal of International Trade & Economic Development, 1-30.
[17]	Hondroyiannis, G., Swamy, P. A. V. B., Tavlas, G. and Ulan, M. (2008). Some Further Evidence on Exchange Rate Volatility and Exports. Review of World Economics Weltwirtschaffliches Archiv, Vol. 44, No. 1, pp 151-180, Springer.
[18]	Kai-Li W. and Barrett, C. B. (2007). Estimating the Effects of Exchange Rate Volatility on Export Volumes. Journal of Agricultural and Resource Economics, Volume 32, Number 2 (August 2007): pp. 225-255.
[19]	Kandil, M. (2009). Exchange Rate fluctuations and The Balance of Payments. Channels of interaction in Developing and Developed countries. Journal of Economic Integration, Vol 24, No.1 pp 151-174.
[20]	Kandil, M., Berument, H. and Dincer, N. N. (2007). The Effect of Exchange Rate Fluctuations on Economic Activity in Turkey. Journal of Asian Economics 18(2007) 466-489 The Western Hemisphere Department, International Monetary Fund, 700 19^th Street, N.W. Washington DC.
[21]	Kemal, M.A and Qadir, U. (2005) Real Exchange Rate, Exports, and Imports Movements: A Trivariate Analysis. The Pakistan Development Review, Vol. 44, No. 2 (Summer 2005), pp. 177-195Published by: Pakistan Institute of Development Economics, Islamabad.
[22]	Kinuthia, B. K. (Undated) Export Structure and Catching Up: Kenya and Malaysia compared. School of Economics, University of Nairobi, Kenya.
[23]	Kiptui, M. (2007). Does the Exchange Rate Matter for Kenya’s Exports? A bounds testing approach. Prepared for presentation at the African Econometric Society 2007 conference, Cape Town, July 4^th to 6^th 2007.
[24]	Kiptui, M. (2008). Does Exchange Rate Volatility harm Exports? Empirical evidence form Kenya’s Tea and Horticulture Exports. Prepared for presentation at the CSAE Conference at Oxford University 16-18 March 2008.
[25]	Kiringai, J. (Undated) Trade Policy and Transport Costs in Kenya. Centre for Research in Economic Development and International Trade, No. 06/11.University of Nottingham.
[26]	Kunst, M. R. and Nuroglu, E. (2012). The Effects of Exchange Rate Volatility on International Trade Flows: Evidence from Panel Data Analysis and Fuzzy Approach. Vol 30.
[27]	Lindert, P. H. (1991). International Economics.
[28]	Liu, Q., Lu, Y., and Zhou Y. (2013). Do Exports Respond to Exchange Rate Changes? Inference from China’s Exchange Reform.
[29]	Mehare, A. and Edriss, A. K. (2012). Evaluation of Effect of Exchange Rate Variability on Export of Ethiopia’s Agricultural Product: Case of Oilseeds. Collaborative Masters Program in Agricultural and Applied Economics Research Theses. University of Minnesota Department of Applied Economics.
[30]	Musonda, A. (2008). Exchange Rate Volatility and Non-Traditional Exports Performance: Zambia, 1965–1999. Financial Markets Department, Bank of Zambia. AERC Research Paper 185African Economic Research Consortium, Nairobi November 2008.
[31]	Musyoki, D., Pokhariyal, G. P. and Pundo, M. (2012). Real Exchange Rate Volatility in Kenya. Journal of Emerging Trends in Economics and Management Sciences (JETEMS) 3 (2): 117-122 © Scholarlink Research Institute Journals, 2012 (ISSN: 2141-7024).
[32]	Nabli, M. K. and Véganzonès-Varoudakis, M. A. (2002). Exchange Rate Regime and Competitiveness of Manufactured Exports: The Case of MENA Countries. Centre National de la Recherche Scientifique Centre d’Etudes et de Recherches sur le Développement International, Clermont Ferrand, France.
[33]	Oduor, J. and Khainga, D. (2010). Equilibrium Real Exchange Rates and Real Misalignment in Kenya: A Fundamental Equilibrium Approach. Kenya Institute for Public Policy Research and Analysis, Macroeconomics Division. KIPPRA Discussion Paper No. 108 2010.
[34]	Oyovwi, O. D. (2012). Exchange Rate Volatility and Imports in Nigeria. Academic Journal of Interdisciplinary Studies Vol 1 No 2 November 2012. Published by MCSER-CEMAS- Sapienza University of Rome.
[35]	Pesaran, M. H. and Y. Shin, (1999). An autoregressive distributed lag modelling approach to cointegration analysis. Chapter 11 in S. Strom (ed.), Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Cambridge University Press, Cambridge.
[36]	Pesaran. M. H., Shin, Y. and Smith, R. J., (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289-326.
[37]	Republic of Kenya (1977) Economic Survey. Government Printer.
[38]	Republic of Kenya (1995) Economic Survey. Government Printer.
[39]	Republic of Kenya (2007) Kenya Vision 2030. A Globally Competitive and Prosperous Kenya.
[40]	Republic of Kenya (2012) Economic Survey. Government Printer.
[41]	Republic of Kenya (2014) Economic Survey. Government Printer.
[42]	Thai Tri Do, (2006) A Gravity Model For Trade Between Vietnam and Twenty-Three European Countries. Department of Economics and Society Thesis 2006.
[43]	Wang, K. L., and Barrett, C. B. (2007). Estimating the Effects of Exchange Rate Volatility on Export Volumes. Journal of Agricultural and Resource Economics, Vol 32, No.2 (August 2007), pp 225-255: Western Agricultural Economics Association.
[44]	Were, M., Sichei, M. and Milner, C. (2009). Trade Policy In Kenya.
[45]	Were, M., G. Alemayehu., Ndung’u, N. S., and S. N. Karingi, (2002). Analysis of Kenya’s Export Performance: An Empirical Evaluation, KIPPRA Discussion Paper Series, DP No. 22. Nairobi: The Kenya Institute for Public Policy Research and Analysis.
[46]	World Bank (2013). The Kenya Economic Update: Time to Shift Gears; Accelerating Growth and Poverty Reduction in the New Kenya. June 2013, Edition No.8.
[47]	Yarbrough, B. V. and Yarbrough, R. M. (2007). The World Economy: Trade and Finance. Thomson South Western.

Cite This Article

Plain Text BibTeX RIS

APA Style

Manaseh Otieno Oiro. (2015). Real Exchange Rate Volatility and Exports in Kenya: 2005-2012. Journal of World Economic Research, 4(5), 115-131. https://doi.org/10.11648/j.jwer.20150405.12

Copy | Download

ACS Style

Manaseh Otieno Oiro. Real Exchange Rate Volatility and Exports in Kenya: 2005-2012. J. World Econ. Res. 2015, 4(5), 115-131. doi: 10.11648/j.jwer.20150405.12

Copy | Download

AMA Style

Manaseh Otieno Oiro. Real Exchange Rate Volatility and Exports in Kenya: 2005-2012. J World Econ Res. 2015;4(5):115-131. doi: 10.11648/j.jwer.20150405.12

Copy | Download

@article{10.11648/j.jwer.20150405.12,
  author = {Manaseh Otieno Oiro},
  title = {Real Exchange Rate Volatility and Exports in Kenya: 2005-2012},
  journal = {Journal of World Economic Research},
  volume = {4},
  number = {5},
  pages = {115-131},
  doi = {10.11648/j.jwer.20150405.12},
  url = {https://doi.org/10.11648/j.jwer.20150405.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jwer.20150405.12},
  abstract = {The real exchange rate has proven to be an important factor in international trade because it is expected that exports react to real exchange rate movements with respect to the characteristics of the importing and exporting countries. Exchange rate volatility increases uncertainty of profits on contracts denominated in foreign currency and subsequently dampens trade and economic growth. This study investigated how real exchange rate volatility affected exports of key Kenyan commodities to the European Union and United Kingdom, namely; tea, coffee and horticulture to the European Union. The presence of exchange rate volatility was determined using the GARCH model. A Bounds testing and Autoregressive Distributed Lag model was used to establish the presence of a long run relationship between exchange rate volatility and commodity exports. Findings revealed that exchange rate volatility affected tea exports to the UK and horticulture exports to the European Union. Foreign income played an important role in explaining tea and coffee exports to the UK and EU respectively. It is recommended that greater value addition be done to tea and coffee exports to ensure that their demand increases with increase in foreign incomes.},
 year = {2015}
}

Copy | Download

TY  - JOUR
T1  - Real Exchange Rate Volatility and Exports in Kenya: 2005-2012
AU  - Manaseh Otieno Oiro
Y1  - 2015/10/19
PY  - 2015
N1  - https://doi.org/10.11648/j.jwer.20150405.12
DO  - 10.11648/j.jwer.20150405.12
T2  - Journal of World Economic Research
JF  - Journal of World Economic Research
JO  - Journal of World Economic Research
SP  - 115
EP  - 131
PB  - Science Publishing Group
SN  - 2328-7748
UR  - https://doi.org/10.11648/j.jwer.20150405.12
AB  - The real exchange rate has proven to be an important factor in international trade because it is expected that exports react to real exchange rate movements with respect to the characteristics of the importing and exporting countries. Exchange rate volatility increases uncertainty of profits on contracts denominated in foreign currency and subsequently dampens trade and economic growth. This study investigated how real exchange rate volatility affected exports of key Kenyan commodities to the European Union and United Kingdom, namely; tea, coffee and horticulture to the European Union. The presence of exchange rate volatility was determined using the GARCH model. A Bounds testing and Autoregressive Distributed Lag model was used to establish the presence of a long run relationship between exchange rate volatility and commodity exports. Findings revealed that exchange rate volatility affected tea exports to the UK and horticulture exports to the European Union. Foreign income played an important role in explaining tea and coffee exports to the UK and EU respectively. It is recommended that greater value addition be done to tea and coffee exports to ensure that their demand increases with increase in foreign incomes.
VL  - 4
IS  - 5
ER  -

Copy | Download

Author Information

Manaseh Otieno Oiro

Trade and Foreign Policy Division, Kenya Institute for Public Policy Research and Analysis, Nairobi, Kenya

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Manaseh Otieno Oiro. (2015). Real Exchange Rate Volatility and Exports in Kenya: 2005-2012. Journal of World Economic Research, 4(5), 115-131. https://doi.org/10.11648/j.jwer.20150405.12

Copy | Download

ACS Style

Manaseh Otieno Oiro. Real Exchange Rate Volatility and Exports in Kenya: 2005-2012. J. World Econ. Res. 2015, 4(5), 115-131. doi: 10.11648/j.jwer.20150405.12

Copy | Download

AMA Style

Manaseh Otieno Oiro. Real Exchange Rate Volatility and Exports in Kenya: 2005-2012. J World Econ Res. 2015;4(5):115-131. doi: 10.11648/j.jwer.20150405.12

Copy | Download

@article{10.11648/j.jwer.20150405.12,
  author = {Manaseh Otieno Oiro},
  title = {Real Exchange Rate Volatility and Exports in Kenya: 2005-2012},
  journal = {Journal of World Economic Research},
  volume = {4},
  number = {5},
  pages = {115-131},
  doi = {10.11648/j.jwer.20150405.12},
  url = {https://doi.org/10.11648/j.jwer.20150405.12},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jwer.20150405.12},
  abstract = {The real exchange rate has proven to be an important factor in international trade because it is expected that exports react to real exchange rate movements with respect to the characteristics of the importing and exporting countries. Exchange rate volatility increases uncertainty of profits on contracts denominated in foreign currency and subsequently dampens trade and economic growth. This study investigated how real exchange rate volatility affected exports of key Kenyan commodities to the European Union and United Kingdom, namely; tea, coffee and horticulture to the European Union. The presence of exchange rate volatility was determined using the GARCH model. A Bounds testing and Autoregressive Distributed Lag model was used to establish the presence of a long run relationship between exchange rate volatility and commodity exports. Findings revealed that exchange rate volatility affected tea exports to the UK and horticulture exports to the European Union. Foreign income played an important role in explaining tea and coffee exports to the UK and EU respectively. It is recommended that greater value addition be done to tea and coffee exports to ensure that their demand increases with increase in foreign incomes.},
 year = {2015}
}

Copy | Download

TY  - JOUR
T1  - Real Exchange Rate Volatility and Exports in Kenya: 2005-2012
AU  - Manaseh Otieno Oiro
Y1  - 2015/10/19
PY  - 2015
N1  - https://doi.org/10.11648/j.jwer.20150405.12
DO  - 10.11648/j.jwer.20150405.12
T2  - Journal of World Economic Research
JF  - Journal of World Economic Research
JO  - Journal of World Economic Research
SP  - 115
EP  - 131
PB  - Science Publishing Group
SN  - 2328-7748
UR  - https://doi.org/10.11648/j.jwer.20150405.12
AB  - The real exchange rate has proven to be an important factor in international trade because it is expected that exports react to real exchange rate movements with respect to the characteristics of the importing and exporting countries. Exchange rate volatility increases uncertainty of profits on contracts denominated in foreign currency and subsequently dampens trade and economic growth. This study investigated how real exchange rate volatility affected exports of key Kenyan commodities to the European Union and United Kingdom, namely; tea, coffee and horticulture to the European Union. The presence of exchange rate volatility was determined using the GARCH model. A Bounds testing and Autoregressive Distributed Lag model was used to establish the presence of a long run relationship between exchange rate volatility and commodity exports. Findings revealed that exchange rate volatility affected tea exports to the UK and horticulture exports to the European Union. Foreign income played an important role in explaining tea and coffee exports to the UK and EU respectively. It is recommended that greater value addition be done to tea and coffee exports to ensure that their demand increases with increase in foreign incomes.
VL  - 4
IS  - 5
ER  -

Copy | Download