Impact of Exchange Rate Fluctuation Determinants on Export Earnings

This study sought to understand the impact of exchange rate fluctuations determinants on export earnings in Kenya using annual data over 1970-2015 time periods by posting a structural relationship between exchange rate fluctuations determinants and export earnings. The results reveal that from unit root tests, the data series used in the model in this study are I (1) in the level series and the first differences series are I (0). Implication of these findings is the existence of a long run relationship between the dependent and independent variables. Cointegration test results that, on the basis of the trace test statistics, show there is one cointegrating vector for the VAR model suggesting that there is a unique long run equilibrium relationship. The coefficients of the dependent variables are all significant and less than one. Thus the responsiveness of export earnings in Kenya to fluctuations in inflation rates, interest rates, money supply and market liberalization is inelastic.