Journal of Development and Agricultural Economics
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Article Number - 5D173BF55989

Vol.10(3), pp. 71-78 , March 2018
ISSN: 2006-9774

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Full Length Research Paper

Effect of price and exchange rate volatility on Kenya’s black tea export demand: A pooled mean group estimation

Winrose Chepng’eno
  • Winrose Chepng’eno
  • Department of Agricultural Economics and Resource Management, Moi University, Kenya.
  • Google Scholar

 Received: 08 February 2017  Accepted: 10 May 2017  Published: 31 March 2018

Copyright © 2018 Author(s) retain the copyright of this article.
This article is published under the terms of the Creative Commons Attribution License 4.0

The tea sector plays an important role in the Kenyan economy mainly through employment, contribution to Gross Domestic Product (GDP) and foreign exchange earnings. However, the sector faces a number of risks including but not limited to production, technological, price and market risks, legal and personal risks. Price and exchange rate volatility is one of the main sources of risk in the agribusiness sector. This paper sought to determine if foreign income, exchange rate, relative prices, price and exchange rate volatility have effects on Kenya’s black tea export demand. The study used panel data from World Bank and Central Bank of Kenya statistical bulletins for the period 1997 to 2010. Price and exchange volatility cannot be observed directly and were thus computed using Moving Average Standard Deviation (MASD) method. Sixteen major importer countries of Kenya’s tea were considered in the study. Im Peseran and Shin (IPS) unit root tests were used for testing the variables for the presence of unit roots. The study employed dynamic heterogeneous panel techniques developed by Peseran and Shin using autoregressive distributed lag (ARDL) model in the error correction form. The empirical model was estimated using pooled mean group (PMG) estimator. The study found that growth in foreign income and changes in price and exchange rate volatility were significant in the long and short run. Proportional changes in relative prices and foreign exchange rate were insignificant in the long run and short run. 
Key words:  Price volatility, exchange rate volatility, Kenya’s black tea exports, autoregressive distributed lag (ARDL) model, pooled mean group (PMG) estimation.

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APA Chepng’eno, W. (2018). Effect of price and exchange rate volatility on Kenya’s black tea export demand: A pooled mean group estimation. Journal of Development and Agricultural Economics, 10(3), 71-78.
Chicago Winrose Chepng’eno. "Effect of price and exchange rate volatility on Kenya’s black tea export demand: A pooled mean group estimation." Journal of Development and Agricultural Economics 10, no. 3 (2018): 71-78.
MLA Winrose Chepng’eno. "Effect of price and exchange rate volatility on Kenya’s black tea export demand: A pooled mean group estimation." Journal of Development and Agricultural Economics 10.3 (2018): 71-78.

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