Ethiopian Coffee Trade Pattern: an Augmented Gravity Modeling Approach

Abstract

This study assessed the coffee trade pattern of Ethiopia for a period of 16 years from 1997-2011 for 36 importing countries, which implies that the data were panel. The data became panel type by having a one year gap and result to have 8 years. In the study, policies undertaken by the different regimes in relation to export policies were assessed. There was consideration of the importing capacity of the countries and successiveness of their importing condition for considering the countries as a sample. We used gravity model to identify the degree to which how the power of importer and exporter nations affect the coffee trade of Ethiopia. We explored different tests in order to select the appropriate model to regress the gravity model. As of those tests, the research had adopted the random effect regression system to regress the gravity model. The model result revealed that the model is strong enough to explain the variation in the dependent variable. The result also exhibited that the demand side variables of the coffee export of Ethiopia are significant in affecting the export value. Given this, the foreign GDP of the trade partners affect the export value of Ethiopian coffee in the positive direction and in a significant manner. This implies that each increment in GDP of the coffee trade partners of Ethiopia result into creation of additional demand for Ethiopian coffee. However, the domestic factors are not significant in affecting the supply level of the coffee export of the country.

Keywords:- Coffee export, Gravity model, Panel data, Demand and Supply side factors