Effect of Exchange Rate on Exports Performance in Kenya

Abstract

The research sought to find out what effect exchange rate has on Kenyan export performance. The explained variable in the research was export performance, its explanatory variable was exchange rate while control variables included inflation, interest and balance of payment. The study used Purchasing Power Parity theory, Interest Rate Differential theory and Heckscher Ohlin theory to determine the underlying relationship of variables. A descriptive research design was used. Its main aim was to find out what effect was caused on Kenyan exports performance by exchange rate. Second hand data, collected on a quarterly basis from 2008 to 2023 was used by the study. Central Bank of Kenya and Kenya National Bureau of Statistics provided information access and the data used was obtained from them. It was then analyzed using STATA and SPSS to obtain statistics both inferential and descriptive. Data was analyzed and presented using tables. The research results indicated a weak positive correlation between Kenyan exports performance and the currency conversion rate. Balance of payments and interest had a weak inverse correlation with export performance. Inflation rate had positive correlation with export performance. The regression results further showed a significant statistical effect existing between Kenyan export performance and exchange rate. Research findings also showed that interest, inflation and balance of payment had no significant statistical effect on export performance. It recommended that new ways of appreciating the currency, to increase export performance, should be implemented or developed by involved bodies such as the government and CBK. It also stated that the government should also ensure that there is a stable exchange rate to attract investors in the export industry. Creation of tax holidays and provision of infrastructure is also necessary in ensuring that there is increased export performance. Lastly, they should ensure that the country maintains a stable interest rate and inflation rate to increase export performance.