Compatibility of Ethiopian Agricultural Commodities Price with their Respective International Price
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Date
2019-06
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Addis Ababa University
Abstract
This study investigates the compatibility of the domestic and international price of major primary agriculture products namely Coffee, Sesame & Pea beans. Cointegration Analysis is employed using monthly data over the period of 2012 to 2018 on top of analysing primary data through interview and focused group discussion. The empirical finding shows that selected agricultural products does not have a long-run relationship with their respective international price (FOB Price) and in most cases, the domestic price is distorted compared to the international price. According to primary data analysis the price incompatibility is aggravated through countries existing macroeconomic instability and prevalence of critical trade balance deficit. This leads to import business operators’ become engage in export for the sake of securing foreign currency to their import and then export business become a scapegoat for import business. The analysis also tells that the price incompatibility does have a multidimensional effect on promoting imported inflation & worsen society’s welfare in addition to affecting macro-economic variables like manipulating interest rate & exchange rate. Overall, the empirical analysis both in secondary & primary sources indicates that there is the absence of price compatibility on primary agricultural export business and, unless necessary policy intervention is implemented, the macroeconomic instability will exacerbate due to such irregularity.
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Keywords
Co-integration, Commodity Market, Market Integration, Price Transmission