Volume 4, Issue 1, February 2015, Page: 15-22
Determinants of Earnings from Tea Export in Kenya: 1980-2011
Agnes Kinya Muthamia, Department of Economics, Accounting and Finance; Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Willy Muturi, Department of Economics, Accounting and Finance; Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Received: Jan. 27, 2015;       Accepted: Feb. 10, 2015;       Published: Feb. 28, 2015
DOI: 10.11648/j.jwer.20150401.12      View  2951      Downloads  366
Abstract
Fluctuation of tea export earnings affects the profitability of firms in the sector and therefore farmers’ earnings (bonus). To this end, there is dire need for stabilizing the earnings to farmers hence need to know the key factors which could be targets for policy and hence the need for this study. The dependent variable was tea export earning while the independent variables were real exchange rate, foreign income and inflation. To enhance accuracy and credibility of this study, control variables used include unit prices of tea, agriculture value added as well as export of goods and services. The specific objectives included exploring the effect of real exchange rate on tea export earnings; the effect of inflation rate, and establishing the effect of foreign income of major trading partners on tea export earnings. Various regression methods are used to test the research hypothesis, including unit root tests, co integration, and error correction model. The long run and short run analysis of these variables is taken to account. Findings ascertain that indeed the model gives a good description of the variables. Foreign income has an indirect relationship with tea export earnings. On the other hand, they are all significant except inflation. There is a direct relationship between tea export earnings and real exchange rate, tea price, export of goods and services, and agriculture value addition. The study recommends tea exporters to hedge against foreign exchange risk through derivative markets. It encourages stakeholders to engage in marketing and value addition. Value addition is a sustainable solution to ensure stability of earnings from tea exports in the country. Finally, strong monetary policies are recommended to enhance price stability and tea export earnings. This is because such policies should curb the problem of extensive volatility of inflation and exchange rates.
Keywords
Export Earnings, Real Exchange Rates, Inflation, Tea Prices, Value Addition
To cite this article
Agnes Kinya Muthamia, Willy Muturi, Determinants of Earnings from Tea Export in Kenya: 1980-2011, Journal of World Economic Research. Vol. 4, No. 1, 2015, pp. 15-22. doi: 10.11648/j.jwer.20150401.12
Reference
[1]
African export-import bank (AFRIEXIM). (2011). Annual Report 2010. Egypt: AFRIEXIM
[2]
Arora, V., & Vamvakidis A. (2004). How much do trading partners matter for economic growth? IMF Working Paper WP/04/26. US: International Monetary Funds.
[3]
Aziakpono, M, Tsheole, T & Takaendasa, P. 2005. Real exchange rate and its effect on trade flows: New evidence from South Africa, accessed 21 January 2013,
[4]
Babatunde, M. A. Can trade liberalization stimulate export performance in Sub-Saharan Africa? Journal of International and Global Economic Studies, vol. 2, no. 1, pp. 68–92, 2009.
[5]
Bailey, R. E. (2005).The economics of financial markets. UK: Cambidge University Press
[6]
Bishop, E. (2001). Finance of international trade. UK: Intellexis plc, Elsevier Ltd
[7]
Cechetti, S. (2008). Money, banking and financial markets. (2nd ed.). US: McGraw- Hill Irwin
[8]
Christian Partners Development Agency, (2008). Report on small-scale tea sector in Kenya. Kenya: CPDA.
[9]
De Grauwe, P. (1996). International money. (2nd ed.). Britain: Oxford University Press
[10]
East Africa Tea Trade Association. (2012). Feasibility study and business process reengineering final report. Kenya: EATTA.
[11]
Edwards, L., & Alves, P. (2005). South Africa’s Export Performance: Determinants of export supply. Africa region, World Bank working paper 95. US: World Bank
[12]
Eun, C. & Sabherwal, B. R. (2012). International Finance. US: US: McGraw- Hill Irwin
[13]
Gomez, C. (2008). Financial markets, institutions and financial services. Newdelhi, India: PHI Learning Private Ltd.
[14]
Gujarati, N 2003, Basic econometrics, (4th Edition). New York: McGraw Hill.
[15]
Howells, P., & Bain, K. (2000). Financial markets and institutions. (3rd ed.). UK: Pearson Education Ltd
[16]
Kenya Vision 2030. (2007). Kenya: Government of the Republic of Kenya
[17]
Korathi, C. (2005). Research methodology. (2nd ed.). India: New Age International (P) Limited, Publishers
[18]
Ministry of Agriculture, (2009). Strategic Plan 2008 – 2012.Kenya: Ministry of Agriculture.
[19]
Oskooee, M. B., Economidou, C., & Goswami, G. G. (2005). Export led growth hypothesis revisited: A panel co integration approach. Scientific journal of Adminstrative Development. Vol. 3. Pp 40-55
[20]
Pesaran, M. H., Shin, Y. and Smith, R. J. 2001. “Bounds testing approaches to the analyses of level relationships”, Journal of Applied Econometrics, No. 16, pp. 289-326.
[21]
Pilbeam, K. (1998). International Finance. (3rd ed.). London, UK: Macmillan Press Ltd
[22]
Pingle, R. & Robinson, M. (2002). E- Money and payment systems review. London: Central Banking Publications Ltd.
[23]
Rodriguez, R. M., & Riehl, H. (1983). Managing foreign and domestic currency operations. US: McGraw- Hill Irwin
[24]
Rowlatt, P. A. (1992). Inflation. London: Chapman & Hall.
[25]
Muguika, K. (2007). Foreign exchange and international trade finance. Kenya: Pinnacle Ltd.
[26]
Sekantsi, L (2007). The impact of exchange rate volatility on South African exports to the United States (US): A bounds test approach. . Last retrieved on 2nd Jan, 2013.
[27]
Tea Board of Kenya. (2012). Kenya Tea. Kenya: TBK
[28]
Tea Research Foundation of Kenya. (2011). Strategic Plan 2010 – 2015. Kenya: TRFK
[29]
Tea Research Foundation of Kenya. (2007). Strategic Plan 2005 – 2010. (2nd ed.). Kenya: TRFK
[30]
Tenreyro, S 2004 ‘On the trade impact of nominal exchange rate volatility’, Federal Reserve Bank of Boston, Working Paper 03-2.
[31]
Todani, RK & Munyama, T 2005, Exchange rate volatility and exports in South Africa, accessed 25 January 2013 ,Trade and Industry Policy,
[32]
Visser, H. (1995). A guide to international monetary economics: Exchange rate systems and exchange rate theories. England: Elgar Publishing Ltd.
[33]
Vergil, H., 2002. Exchange rate volatility in Turkey and its effects on trade flows. Journal of Economic and Social Research, 4 (1), pp. 83-99.
[34]
Wesseh, P. K., & Niu, L. (January, 2012). The impact of exchange rate volatility on trade flows: New vidence from South Africa. International Review of Business Research Papers. Vol. 8. (1). Pp. 140 - 165
[35]
Were, M., Ndung’u, N., Geda, A., & Karingi, S. (2002). Analysis of Kenya’s export performance: empirical evidence. KIPPRA Discussion Paper No. 22. Kenya: KIPPRA
[36]
World Bank. (2011). The state of Kenya’s economy. US: World Bank
Browse journals by subject