Effect of coffee export expansion on economic growth in Ethiopia

Abstract

Ethiopia is known as the birth place of Coffee Arabica. Coffee has been and remains the leading cash crop and export commodity of Ethiopia. Coffee export has heavily contributed to both domestic and foreign earnings in the country. One can argue the positive association found between coffee export expansion and economic growth. Thus, this study is aimed to investigate the effect of coffee export expansion on economic growth in Ethiopia. Coffee export data during the period 1981/82 - 2019/20 were obtained from secondary data of National Bank of Ethiopia, Central Statistical Agency of Ethiopia, Ministry of Finance and Economic Development of Ethiopia, Ethiopian Revenues and Customs Authority, and Ethiopian coffee and tea authority. Explanatory variables namely Coffee export value(CEX), gross capital information (Investment), Total labor force (TLF), real effective exchange rate (REER), Total labor forces(TLF),Trade Openness (TOP),imports (IM) and Inflation(Infl) were regressed using the Autoregressive Distributed Lag (ARDL) model. Granger causality method was used to test the direction of causality between coffee export and economic growth. The long run results obtained indicated that coffee export has positive and significant effect on economic growth of Ethiopia. In the short run, coffee export has significant effect on economic growth. The result from econometric analysis revealed that the GDP and TOP significantly and positively affect coffee export. Thus, increasing quality and quantity of coffee would bring a vital outcome for increasing its coffee export performance. To improve the policy coffee trade and quality of coffee export, the government should adopt modern machines and technology, provide adequate inputs and ensure availability of credit.