Determinants of global coffee trade: Does RTAs matter? Gravity model analysis

Abstract

This study investigates the patterns of global coffee trade flows and identifies the major determinants of global coffee trade by incorporating RTAs as important variable. Gravity modeling with OLS and PPML estimator was employed for the analysis using panel data on bilateral coffee trade flows of 18 major coffee exporters and 201 trading partners for the period 2001–2015. Both exporter GDP (and population) as well as importer GDP were found to be important determinants enhancing coffee trade. Of the bilateral distance variables, physical distance is found to impede coffee trade, while common border was found to enhance it. On the other hand, cultural (distance) variables like colonial link, common colonizer and common language were also found to enhance coffee trade. Other variables that were found to significantly enhance coffee trade include depreciation in exporting country’s exchange rate, the amount of arable land in exporting country, infrastructure and global financial crisis. On the other hand, importing country tariff was found to significantly reduce coffee trade as expected. Surprisingly, the RTA variable had no significant impact on coffee bilateral trade.