Export Performance of Spice Crops and Its Determinants in Ethiopia: VECM Analysis

Abstract

Ethiopia, as the case of many developing countries export has been limited to few primary products which are mainly agricultural commodities. From the total exports of the country coffee was the dominant export commodity accounting for about 52.27 per cent of the country's total exports, on average. Spices are essential oils that give foods and beverages flavor, aroma and sometimes color. Ethiopia has reached to production level of spice crops 244,000 ton/annum having area coverage of 122,700 hectares. The objective of this study is to examine spice crops export performance in Ethiopia. In this study, time series secondary data for the period 1992/93 to 2015/16 has been collected from FAOSTAT, IMF database and CoMTRADE data source. The value of spice exported, real exchange rate (official exchange rate), real income and real GDP of partners and Ethiopia in respective order, measured in USD, and openness for trade data was collected from the aforementioned sources. All the data was transformed into natural logarithm form before analysis. The VEC model is very important in the analysis of spice crop export performance of Ethiopia and has proven to be a useful tool in determining export potential of the country. STATA software was utilized to analyze the secondary data obtained from different sources. The time series data that are used in this study are export of spice crops valued in US dollar, real income of trading partner, real GDP of home country valued in USD and openness for trade. Accordingly, in the long run   log form of real effective exchange rate, openness to external trade and real GDP are significant at 5 percent level of significant. The short run model output shows these variables are insignificant. The export of Ethiopian spice crop competitiveness also  dependent on the effectiveness of real exchange rate. Thus, the government should work hard to keep stable the rate of exchange rate.

Keywords: Export, VEC model, time series data, demand

DOI: 10.7176/JESD/11-3-06

Publication date: February 29^th 2020