Abstract:
Horticultural exports, alongside tea and coffee, are major contributors to Kenya’s
agricultural sector, driving economic growth and stability. The Kenyan horticultural sector
in 2022 faced some challenges but still played a significant role in the economy. Export
value of horticultural products dipped slightly compared to 2021, with Kenya earning
roughly 152.3 billion Kenyan shillings, which translates to around 1 billion US dollars,
from fresh produce exports. The general objective of this study was to assess the effect of
macroeconomic drivers and the moderating role of government effectiveness on Kenya’s
horticultural export performance. The study was guided by the following specific
objectives; To assess the effect of terms of trade on horticultural export performance in
Kenya; to investigate the effect of interest rates on horticultural export performance in
Kenya; to investigate the effect of inflation on horticultural export performance in Kenya,
to determine the effect of Exchange rate on horticultural export performance in Kenya and
lastly to investigate the moderating role of government effectiveness on the relation
between exchange rates, terms of trade, inflation, interest rates and horticultural
performance in Kenya. The study utilized annual secondary time series data obtained from
Kenya National Bureau of Statistics and the World Bank governance indicator spanning
the period 1990 to 2021. Comparative advantage theory is the theory that underpinned this
study. The Vector Error Correction model was used to test for cointegration and to
determine short run and long run relationship with respect to each of the variables in this
study. Data was analyzed using STATA software version 14. The findings from this study
indicated that exchange rate (𝛽1 = −.487, p<0.05), inflation rate had a negative
significant relationship with horticultural export performance while interest rate (𝛽3 =
.441, p<0.05) and terms of trade (𝛽4 = 1.024, p<0.05) had a positive significant
relationship with horticultural export performance. Government effectiveness had an
enhancing moderating relationship between exchange rate (β= 0.630, p<0.05), inflation
(β= 1.131, p<0.05) and interest rate (β= .112𝑝 < 0.05) and horticultural export
performance. Further, it had a buffering moderating effect on the relationship between
terms of trade (β= −.719, p<0.05) and horticultural export performance. The study
concludes that there is significant relationship between exchange rate, inflation rate,
interest rate and terms of trade and horticultural export performance since the null
hypothesis formulated in the study were rejected. The study's conclusions have
implications for policy makers and regulators. First, the study recommends that there
should be sound and solid macroeconomic policies in place that do not dislodge
macroeconomic variables. These include effective fiscal and monetary policies and come
up with export promotion and import substitution policies that could see more producers
producing more horticultural products for exports and source for new markets for local
horticultural products and elimination of tariffs and quotas for local producers that are
involved in production of horticultural products. Additionally, the government may
promote government effectiveness by promoting inclusive political and economic
institutions. Finally, future research should consider doing a comprehensive analysis by
expanding the scope to other countries such countries in East Africa or Sub-Saharan
Africa.