Impact of exchange volatility on agricultural exports

Abstract

This study investigates the impact of exchange rate volatility on agricultural exports in Kenya, a sector that contributes 33% to GDP and 60% to export earnings. The research employs a descriptive design and analyzes time series data from 2000 to 2020, using the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model to measure exchange rate volatility and a multiple linear regression framework to assess its effects alongside export prices, inflation, and GDP growth. The results reveal a negative but statistically insignificant relationship between exchange rate volatility and agricultural exports, suggesting that currency fluctuations, while challenging, may not be the primary determinant of export performance. Export prices, however, exhibit a strong positive and significant effect on export volumes, emphasizing the importance of competitive pricing. Inflation is found to have a significant negative impact, indicating that rising production costs undermine export competitiveness, while GDP growth has a negative but statistically insignificant effect, likely reflecting increased domestic consumption. The study concludes that while exchange rate volatility does not directly constrain agricultural exports, stabilizing exchange rates and controlling inflation are critical for creating a predictable trading environment. Policy recommendations include promoting currency stability, reducing production costs, and improving infrastructure to enhance the sector's resilience and competitiveness. These findings provide valuable insights for policymakers and stakeholders aiming to sustain economic growth through robust agricultural export performance.