The effects of Exchange rates on Kenyan Sugar Imports from COMESA Region

Abstract

Kenya’s currency has devaluated against the US dollar and also to its major trading partners for the past years which has resulted to increased costs of importing major processed agricultural commodities and import duties. The objective of this paper is to find the impact Kenyan exchange rates on sugar imports from and to evaluate the nature of relationship between Kenyan exchange rates and sugar imports from COMESA. This paper used secondary data of thirty five years from the year 1976 to 2010.The Data was obtained from Kenya book of sugar statistics. Exchange rates are dependent variables and amounts of sugar imports as the independent variable. Testing units was done using Augmented Dickey Fuller (ADF) and Phillips-Perron (PP). Johansen test for co-integration was used to test for co-integrating relationship between the variables. Vector Autoregressive model and Vector Error correction models were used in this study with the application of econometric analysis on the models. The results from this study show the co-integrated relationship between theeffects of importing sugar from COMESA on Kenya’s foreign exchange rate.