Effects of exchange rate volatility on Kenya-China bilateral trade
Date
2024
Authors
Miriti, G. K.
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
Developing countries are often associated with trade deficits; Kenya is no exception. Since independence, Kenya has prominently experienced trade deficits, with Kenya's leading partner, China, accounting for over 30% of this trade deficit. Among the factors influencing a country's trade balance, exchange rates are considered fundamental in affecting the level of trade. Despite this, only a few studies have explored the effect of the volatility of exchange rates on trade and trade balance in Kenya, and even fewer studies have examined this relationship by considering Kenya and its leading trade partner, China. This study explored the impact of USDKES volatility and the ensuing implications for this bilateral relationship. Contrary to previous studies in Kenya, this study used disaggregated categorical commodity data to explore Kenya's exchange rate-trade balance nexus. The study was anchored on a positivist research philosophy and employed a descriptive correlational design. The study used the Garch (1, 1) model to model volatility. The ARDL was used to determine the short-run and long-run effects of the exchange rate volatility on imports, exports, and trade balance. The trade data used was for the period ranging from 2005 to 2022. The study's results pointed to an adverse effect of exchange rate uncertainties on imports from China and no significant impact on exports and the bilateral trade balance. The study recommends that the government employ exchange rate policies to reduce the trade deficit level. Additionally, exchange rate policies can promote economic growth in Kenya.
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Full - text thesis
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Citation
Miriti, G. K. (2024). Effects of exchange rate volatility on Kenya-China bilateral trade [Strathmore University]. http://hdl.handle.net/11071/15504