International Journal For Multidisciplinary Research

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Determinants of Export and Import Dynamics: The Role of Exchange Rates in Kenya’s Economy

Author(s) Dr. Shyam Charan Barma
Country India
Abstract This study investigates the long-run and short-run dynamics among Kenya’s exchange rate, exports, and imports using monthly data from January 1992 to October 2017 through a Vector Error Correction Model (VECM). ADF test analysis confirms that the variables are non-stationary at levels but become stationary after first differencing, indicating integration of order one. The VECM reveals cointegration, with imports strongly driving shilling depreciation and exports exerting a smaller appreciating effect. The shilling shows moderate error correction, while imports and exports exhibit strong adjustments, reflecting high trade sensitivity. A significant relationship exists between the exchange rate, exports, and imports, with exports negatively influencing imports, suggesting potential trade balance improvements. However, limited export responsiveness to depreciation and import crowding effects highlight structural challenges. Policymakers should prioritize stabilizing the shilling, diversifying exports, and reducing reliance on inelastic imports (e.g., oil, machinery) to enhance Kenya’s trade balance and economic resilience, addressing structural constraints to improve competitiveness
Keywords Stationarity, ADF Test, Vector Error Correction Model, VEC Stability Condition Check
Field Sociology > Economics
Published In Volume 7, Issue 4, July-August 2025
Published On 2025-07-29
DOI https://doi.org/10.36948/ijfmr.2025.v07i04.52086
Short DOI https://doi.org/g9vpzm
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