Determinants of Coffee Export Supply in Ethiopia: Error Correction Modeling Approach

Abstract

Coffee contributes an average of 65% to total export earning in Ethiopian economy and provides a source of livelihood for a substantial number of farmers. In this study, the determinant of coffee export supply in Ethiopia from the supply side is specified and estimated using error correction model. From the error correction model result, the coefficient of the co-integrating equation tells us that about 78.7 percent of disequilibrium corrected each year by change in export supply of coffee.  Ethiopian coffee export supply in the short run is determined by real exchange rate, foreign capital inflow, real income and term of trade. In the long run it is determined by domestic price, real exchange rate, real income and term of trade.  In the long run there is high price elasticity but in the short run it is low.

Keywords: Error correction model, Cointegration, Coffee Export Supply, Short and Long run.