Determinants of Coffee Export Performance in Ethiopia

Abstract

The paper developed with the objective of investigating the major determinants of coffee export supply in Ethiopia for the period of 1981-2011. It employs Vector Auto Regressive and Error Correction approach to identify the major determinants. It further used the granger causality test so as to find the direction of causality between coffee export supply and some of the independent variables. The findings of the study indicated that real export price of coffee, domestic production of coffee, physical infrastructure, and world supply of coffee affects coffee export supply significantly. The ratio of export plus import to GDP which is a proxy for openness to trade affects coffee export supply only in the long run. Finally the study found that the impact of real exchange rate in the long run as well as in the short run is statistically insignificant. Granger causality test established bidirectional causality of coffee exports with domestic production of coffee, but the direction of causality of coffee exports supply with real export price and world production of coffee is unidirectional. The policy implication is that improvement in the quality of coffee export, expansion in domestic production of coffee and road sector are believed to provide significant effect on export supply of coffee.      

Keywords: Ethiopia, Export supply, Coffee, Vector Auto Regressive, Error Correction Mechanism