Competitiveness and Determinants of Coffee Export in Ethiopia: An Analysis of Revealed Comparative Advantage and Autoregressive Distributed Lag Model

Abstract

As an export commodity coffee industry contributes to the economies of both exporting and importing countries. The aim of study involves competitiveness and determinant of coffee export in Ethiopia through the period of 1990–2018 observations. To explain level of comparative advantage and competitiveness respectively Revealed Comparative Advantage and Syematric Revealed Comparative Advantage were employed. To capture determinans of coffee ARDL model with bound testing to co-integration approach was employed to investigate the long run association between Ethiopian total coffee export in bags (60kg each) with domestic coffee production,world coffe price,real exchange rate,FDI,world coffee production and price ratio. Eventhough Ethiopia has comparative advantage in export of coffee however, the share it in international market low in amount and  not in lined with RCA. Bound testing to co-integration approach result confirmed the existence of a long-run relationship between total coffee exports of Ethiopian with its independent variables. The analysis pointed out that in the long run the extent of domestic coffee production, world price and real exchange rate positively and significantly affects total coffee export. However, FDI, price ration, world production of coffee have negative & significant effect. In short run Ethiopian total coffee export defined as positive significant  function of domestic coffee production and real exchange rate positive but insignificant effect with Level of RCA and world price as well as negative function of FDI, price ration and world production of coffee.  Evidence from Granger causality test confirms that unidirectional,bidirectional and independent Granger causality were observed. Coefficient Error Correction Model (ECM (-1)) was negative and significant with value 134.4 % of the adjustment would made each year and returned to its long-run equilibrium after 1.3 years. The policy implication calls for addressing issues of combined effect of the policy setting, institutions and market failures to avoid evil effect of the sector.

Keywords: ARDL Coffee Competitiveness  Determinant RCA

DOI: 10.7176/JESD/12-5-05

Publication date:March 31^st 2021