Exchange rate and agricultural output performance in Kenya

Sharon Mwendwa; Maureen Ndagara; Paul Mugambi

doi:10.51867/AQSSR.2.4.35

Authors

Sharon Mwendwa Tharaka University, Kenya Author https://orcid.org/0009-0007-8016-7060
Maureen Ndagara Tharaka University, Kenya Author
Paul Mugambi Embu University, Kenya Author https://orcid.org/0000-0003-0927-4991

DOI:

https://doi.org/10.51867/AQSSR.2.4.35

Keywords:

Agricultural Land, Agricultural Output, Exchange Rate, Exchange Rate Depreciation

Abstract

The purpose of this research was to examine the effect of exchange rates on the performance of agricultural output in Kenya from the year 1986 to 2023. The theoretical framework that guided this research was the export-led growth theory. The research applied the time series analysis and causal study design. The secondary data used was filtered on many sources of government data, such as economy surveys and the Kenya National Bureau of Statistics (KNBS). The study used the VECM model to analyze both short-run and long-run impacts by using Stata as the statistical program to test the quantitative data. Based on the healthy VECM that was developed, the findings revealed that the exchange rate had a positive significant short-run relationship with agricultural output. However, in the long run, the exchange rate and agricultural output had a negative and statistically significant relationship. This implied that a 1% increase in the exchange rate would result in a 0.127% decrease in agricultural output. Also, agricultural land influenced agricultural output negatively in the short run. However, in the long run influenced agricultural output positively, suggesting that expansion of land increases productivity. The findings suggest that the depreciations in the exchange rates would lead to a rise in the agricultural productivity of the country in the short run but negatively influence agricultural output in the long run due to a high increase in imported input prices. Hence, the policymakers ought to implement appropriate policies that aim at stabilizing the exchange rate, therefore making production cheaper, and also the government should encourage the people to use the local inputs.

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