Exchange Rate Volatility and Export Performance of Tea Firms in Kenya

Abstract

The problem of exchange rate volatility has for many years given rise to a relentless debate in the field of economics and to the finance professions in many parts of the world. In Kenya, the subject has been at the centre of current economic policy debate for the past decades, involving policymakers, the business community, academicians and or researchers and the business press at large. It is therefore from these continuous agitations from different corners of the business word that this study is purposed to empirically establish the effect of Exchange rate volatility and on export performance of Tea firms managed by Kenya Tea Development Agency in Kenya with specific interest being to determine the magnitude at which foreign exchange rate affects export performance of tea firms in Kenya, to examine the level at which tea substitute prices affect export performance of tea firms in Kenya and toestablish the degree at which domestic tea prices affect export performance of tea firms in Kenya. This study was therefore governed by positivism research philosophy characterized by the testing of hypothesis developed from existing theory through measurement of observable social realities. This study adopted a census approach where secondary average monthly means for the 54 (fifty-four) tea firms was collected fora period of five years (January 2008 to December 2012).The results in this study indicated that exchange rate volatility and domestic tea prices weresome of the variables that influence export performance of tea firmsin Kenya to the world markets. However, the tea substitute’s prices did not influence the export performance of tea firms to the importing countries. The study further realised interdependence between exchange rate stability, macroeconomic stability and export performance and hence policy makers needs to consider the existing degree and likely effects of exchange rate volatility while designing, developing and implementing trade policies. Key words: Exchange rate volatility, export performance, forex rate, tea substitutes, and domestic tea prices