EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA

Jeanne N. Legilisho; Isaacs Kemboi; James Onyango

doi:10.17261/Pressacademia.2025.1978

EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA

Abstract

Purpose – This study investigates the effect of exchange rates and tariffs on Kenya’s terms of trade (ToT) between 2001 and 2021. It addresses a gap in empirical literature concerning the interaction between these trade variables and ToT, particularly in the context of Kenya’s structural economic transitions and exposure to external shocks. Methodology – An explanatory research design was adopted using annual time series data. The study applied the Autoregressive Distributed Lag (ARDL) model and Toda-Yamamoto Granger causality testing to evaluate both the short-run and long-run impacts of exchange rates, tariffs, exports, and imports on ToT. Diagnostic tests for multicollinearity, normality, and autocorrelation were conducted to validate model robustness. Findings – Granger causality results indicated that exchange rates, tariffs, exports, and imports significantly influence ToT, with bi-directional causality observed for all except exports. The ARDL model showed strong overall fit (R² = 82%) but failed to find statistically significant long-run effects from any single trade variable. In the short run, exchange rate depreciation significantly improved ToT, while import growth had a marginally negative effect. Exports and tariffs demonstrated limited immediate influence despite their predictive relevance. Conclusion – Kenya’s ToT dynamics are most responsive to short-term exchange rate adjustments and import levels, with limited long-run determinacy from individual trade variables. The findings underscore the need for a flexible exchange rate regime, smarter tariff policy aligned with industrial goals, and export diversification. Coordinated macroeconomic and trade strategies are vital for insulating Kenya’s trade performance from external volatility and enhancing its global competitiveness.

Keywords

References

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Details

Primary Language

English

Subjects

Finance, Finance and Investment (Other), Business Administration

Journal Section

Research Article

Authors

Jeanne N. Legilisho ^* This is me
0009-0003-5899-5151
Kenya

Isaacs Kemboi
0000-0002-3142-7563
Kenya

James Onyango
0009-0002-4344-1810
Kenya

Publication Date

July 30, 2025

Submission Date

April 22, 2025

Acceptance Date

June 27, 2025

Published in Issue

Year 2025 Volume: 14 Number: 1

DOI

https://doi.org/10.17261/Pressacademia.2025.1978

IZ

https://izlik.org/JA98RA24ZW

Cite

RIS / Bibtex

APA

Legilisho, J. N., Kemboi, I., & Onyango, J. (2025). EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA. Journal of Business Economics and Finance, 14(1), 87-97. https://doi.org/10.17261/Pressacademia.2025.1978

AMA

1.Legilisho JN, Kemboi I, Onyango J. EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA. JBEF. 2025;14(1):87-97. doi:10.17261/Pressacademia.2025.1978

Chicago

Legilisho, Jeanne N., Isaacs Kemboi, and James Onyango. 2025. “EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA”. Journal of Business Economics and Finance 14 (1): 87-97. https://doi.org/10.17261/Pressacademia.2025.1978.

EndNote

Legilisho JN, Kemboi I, Onyango J (July 1, 2025) EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA. Journal of Business Economics and Finance 14 1 87–97.

IEEE

[1]J. N. Legilisho, I. Kemboi, and J. Onyango, “EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA”, JBEF, vol. 14, no. 1, pp. 87–97, July 2025, doi: 10.17261/Pressacademia.2025.1978.

ISNAD

Legilisho, Jeanne N. - Kemboi, Isaacs - Onyango, James. “EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA”. Journal of Business Economics and Finance 14/1 (July 1, 2025): 87-97. https://doi.org/10.17261/Pressacademia.2025.1978.

JAMA

1.Legilisho JN, Kemboi I, Onyango J. EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA. JBEF. 2025;14:87–97.

MLA

Legilisho, Jeanne N., et al. “EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA”. Journal of Business Economics and Finance, vol. 14, no. 1, July 2025, pp. 87-97, doi:10.17261/Pressacademia.2025.1978.

Vancouver

1.Jeanne N. Legilisho, Isaacs Kemboi, James Onyango. EFFECT OF EXCHANGE RATES AND TARIFFS ON TERMS OF TRADE IN KENYA. JBEF. 2025 Jul. 1;14(1):87-9. doi:10.17261/Pressacademia.2025.1978