Real Exchange Rate Dynamics and Agricultural Export Performance in Kenya: Asymmetric Effects, Commodity Heterogeneity, and Structural Transmission Channels
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Abstract
This study examines whether real effective exchange rate movements affect Kenyan agricultural export performance, and whether these effects differ across appreciation and depreciation episodes. Using annual data from 1999 to 2024 and a Nonlinear Autoregressive Distributed Lag framework, this paper estimates separate long-run and short-run exchange rate elasticities for tea, coffee, and cut flowers. Tea export volumes respond positively to both appreciation and depreciation in the long run, with the depreciation elasticity of 1.314 (p = 0.014) larger than the appreciation elasticity of 0.619 (p = 0.003), and the error correction term of minus 2.441 confirming rapid adjustment. Coffee exports are not responsive to the real effective exchange rate; global Arabica prices are the dominant driver, with a long-run price elasticity of minus 0.358 (p = 0.001). Cut flowers show the strongest exchange rate sensitivity of the three commodities, with significant long-run appreciation and depreciation elasticities of 1.080 (p = 0.009) and 1.242 (p = 0.032) respectively, alongside highly significant short-run impacts. Robustness checks using Fully Modified OLS and Dynamic OLS confirm the flowers finding, with long-run REER elasticities of approximately 0.87 to 0.88 across both estimators. The results indicate that exchange rate policy is most effective as an export promotion tool for horticulture, while coffee sector performance requires attention to global price conditions rather than currency management.
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