Vector Autoregressive and Cointegration Analysis of Coffee Export: the Case of Ethiopia
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Date
2012-06
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Addis Abeba university
Abstract
Ethiopia is known as the birth place of Coffee Arabica and it has been and remains the leading
cash crop and export commodity of Ethiopia. It accounts on average for about 5% of gross
domestic product (GDP), 10% of total agricultural production and 60% of total export earnings
for the past three to four decades; and 50% of the total produced is consumed locally. The study
is aimed to develop a multivariate time series model which explains the price-volume
relationship of coffee export in Ethiopia using vector autoregression (VAR) and vector error
correction (VEC) model. The data used are monthly observations from September 2006 to July
2011 of the volume of coffee export, free-on-board price, producer price and world price.
Unit root tests of the series under study reveal that all the series are non-stationary at level and
stationary after first difference. The result of Johansen test indicates the existence of one
cointegration relation between the variables and there is long-term dynamics between volume of
coffee export, free-on-board price, producer price and world price. Granger causality test
indicates that there is no transmission of price signals from the world market to the local market.
VAR (1) model analysis show that free-on-board price is significantly explained by its own past
and by lagged value of producer price. Furthermore, the result indicates that the volume of
Ethiopian coffee export is not affected by price
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Cointegration Analysis of Coffee Export