The Role of Currency Fluctuations in Shaping Kenya’s Export Performance

This study explores the impact of exchange rates on Kenya’s export performance from 1990 to 2022. The study utilizes a causal research design and time series data to assess the influence of exchange rate fluctuations, volatility, and relative price levels on export volumes and their contribution to GDP. Descriptive statistics reveal considerable variability, with exports displaying slight positive skewness and exchange rates exhibiting a slightly left-skewed distribution. Unit root tests confirm non-stationarity in the level forms of exports, exchange rates, the export unit value index, and the price level ratio, which become stationary after first differencing, thus suitable for econometric modeling. The Vector Error Correction Model results indicate insignificant long-run effects of exchange rates, export unit value index, andprice level ratio on exports, despite significant short-run adjustments correcting deviations from the long-run equilibrium by approximately 73.4% per period. Short-run analyses show insignificant effects of lagged exchange rate andexport unit value index differences on exports, while price level ratio exhibits a marginally significant negative effect. The research emphasizes the necessity for stable exchange rates to foster a predictable export environment, crucial for attracting investments and sustaining economic growth. The study recommends diversification of Kenya’s export base, enhanced competitiveness through technological advancements and skill development, and creation of financial instruments to mitigate exchange rate risks. Strengthening export promotion initiatives and improving data collection and research are also advocated to support informed policymaking. The study’s findings are pertinent to policymakers, investors, and researchers, highlighting how currency fluctuations affect economic stability, job creation, and living standards.