Exchange rate volatility and export of coffee in Uganda (1992-2016)
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Date
2018-09
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Kampala International University , College Of Economics And Management
Abstract
The main purpose of this study was to establish the influence of exchange rate volatility on export of coffee in Uganda from 1992-2016. It was driven by five major objectives, to examine the significant influence of exchange rate volatility on export of coffee in Uganda, To examine the effect of inflation rates on export of Coffee (1992-2016), To establish the effect of interest rates on export of Coffee To examine the effect of foreign direct investments on export of Coffee, To examine the effect of price on export of coffee. Using time series data from the world bank and bank of Uganda and Uganda coffee development authority, both regression analysis were applied to investigate and build a model for explaining the variation in export of coffee. Augmented Dickey Fuller (ADF) unit root test for stationarity was employed in this study to test the stationarity the export of coffee in Uganda representing Uganda’s export volume and value of coffee is considered as the dependent variables in this study. Exchange rate volatility (independent variable) is divided into four different attributes, for instance, inflation, interests rate FID and price. The exchange rate volatility was calculated by using stander deviation of the variance of nominal effect of exchange rate. The data shows all the variables after taking the first difference become stationary. The results further show that all the variables are stationary at the 5% level of significance. This is evident in the computed ADF coefficients being greater than the absolute critical tau value. The diagnostic tests for the regression model show that there is no exist of collinearity as the VIF statistics associated with each of the independent variables in the model were within the acceptable range. The results of the analysis indicate that exchange rate volatility and FDI have not statistically significant effect to the export coffee in Uganda, (1992-2016), The non significance of exchange rate volatility on export of coffee is not surprise this is because coffee is trades on the international commodity market. The data also reveals that Regression results inflation and interest rate have positive statistical significant effect on export of coffee while price have statistically significant effect on export value of coffee but not in export volume of coffee. Since the exchange rate volatility has no significant effect on export of coffee the government should undertake other studies e.g firm level research effect by coffee exporters in Uganda. The study thus recommends that Government should subsides the local farmer to be able to, more competitive in international market. Although exporters and policy makers have been preoccupied with recent steep exchange rate appreciation, focus needs to shift to production level and support towards reforms of trade agreements, since the exchange rate have no effect on export of coffee .This will enable exporters to hedge against low quality export. Government of Uganda should also promote policy of devaluate the local currency which helps the local exporters to increase their export of coffee; this would help international buyers to buy Uganda’s coffee at cheaper price. The researcher also recommends that government should help the local exports to be more accessible to the loans by lower the interest rate on loans. The researcher contributes that inflation, interest rate and price has considerable consequence on Uganda’s export of coffee while the exchange rate volatility and FDI have no significance effect on Uganda’s export of coffee.
Description
A Thesis submitted to the College of Economics and Management in partial fulfillment of the requirements
for the award of Masters Degree in Economic Policy and Planning at Kampala International University
Keywords
Exchange rate volatility, Coffee exports, Uganda