Does exchange rate Volatility Harm exports? Empirical evidence from Kenya’s Tea and Horticulture Exports CSAE Conference

or members of the Board of the Central Bank of Kenya. The study investigates the impact of real exchange rate volatility on Kenya’s exports of horticulture and tea in an export demand framework which also includes relative prices which is a measure of competitiveness and foreign incomes capturing foreign economic activity. The study applies cointegration techniques and error correction modelling to Kenyan monthly data over the post-liberalization period, from 1997:01 to 2007:9. The results indicate the existence of long-run relationships and show that real exchange rate volatility has negative effects both in the short-run and the long-run. In the long-run or cointegrating equations, the foreign income elasticities turn out to be around unity, that is, 1.19 for horticulture and 1.03 for tea while the relative price elasticities are-1.28 for horticulture and-0.53 for tea. The results demonstrate the important role played by exchange rate volatility as it is shown to have adverse effects on horticulture and tea in the long-run with elasticities of