Effect of Exchange Rate Volatility on Ethiopian Coffee Export

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Addis Ababa University


This study tried to evaluate the effect of exchange rate volatility on Ethiopian coffee export. It has employed annual time series data (1980-2015) collected from the country’s different institutions, namely: National Bank of Ethiopia (NBE), Ministry of Finance and economic development (MOFED) and Ethiopian Custom Authority (ECA). The overall objective of the study was to investigate the effect of exchange rate volatility on Ethiopian coffee export. Tools of descriptive statistics were used to analyze the data and understand the dynamics of the variables included in the analysis. A Bounds testing and Autoregressive Distributed Lag (ARDL) model was used to establish the presence of a long run relationship between exchange rate volatility and coffee export. In order to evaluating exchange rate volatility, the study employed the standard deviation method. The result of the study indicates that coffee export in Ethiopia has negative and significant relationship with exchange rate volatility. Again Gross Domestic Product (GDP) and Terms of Trade (TOT) have negative effect on coffee export. On the other hand, Trade openness and real effective exchange rate were found to be positively related and significant. From these results, the study recommended that policy makers in the country should try to maintain a well-managed stable exchange rate regime. Also, the government could set up a coffee export stabilization fund that would ensure a certain amount of predictability in coffee prices during export. The other measures should be related with both export and destination diversification. Other agricultural and industrial products and goods to be exported in addition to coffee to earn foreign currency should be assessed. The other one is not only diversifying the export items, but also the government needs to diversify export market destinations.


A Thesis Submitted to the School of Graduate Studies of Addis Ababa University in Partial Fulfillment of the Requirements for the Degree of Masters of Science in Economics (International Economics)


Coffee, Exchange rate volatility, Exports