DETERMINANTS OF COFFEE EXPORT IN ETHIOPIA: AN APPLICATION OF CO-INTEGRATION AND VECTOR ERROR CORRECTION APPROACH

Abstract

Purpose. The study aimed to analyze the determinants of coffee export through the variables of coffee production, trade openness, world coffee export in tone, population and export prices for the period of 1977–2016 for 38 observations. Methodology / approach. The co-integration approach was employed to investigate the long-run causal association between Ethiopian coffee export in kg and export price, world coffee export level, population and coffee production, trade openness. The coffee export demand functions in Ethiopia were estimated using co-integration analysis and Vector Error Correction Models. Results. The co-integration result confirmed the existence of a long-run relationship between Quantity Ethiopian coffee exported and export price, coffee production world export coffee in tone and population size of age between 15 to 64. The analysis pointed out that in the long run the extent of Ethiopia coffee export inversely related to coffee production in the country and world coffee supply in tone and directly related to export price and population size of active aged category. The speed of adjustment was estimated to be 24 % that implied the economy will converge towards the long run equilibrium in approximately one year following a shock. Originality / scientific novelty. The empirical analysis indicated the existence of short term causal link from lagged export level of coffee, population size of active labour force, trade opens and export price towards export in the coffee export model. In short run Ethiopian coffee export defined as positive function of trade opens and negative function of lagged year coffee export in tone, export price and population size of active labour force in the country. Practical value / implications. The policy implication of the time series analysis calls for improved works on value addition and productivity improvement to respond for soaring national and international demand and betterment in trade relation with nations abroad that expected to optimization of the organic attributes of Ethiopian coffee in sustainable manner. The Vector Error Correction Model also indicated a significant short-run as well as long run relationship between changes in exports and changes in export price and population size.