Terms of trade for coffee and economic performance of Ethiopia

Abstract

This sub-thesis examines the trend and fluctuations in the commodity and income terms of trade for Ethiopia's coffee. Given the importance of the coffee sector, an analysis is undertaken on the impact of the trend and fluctuations of the income terms of trade for coffee on major macro-variables of the country. The study commences with a discussion on the objectives, methodology and data sources followed by background details of the micro-sector of the coffee economy and of the macro-economic conditions in which it functions. Then a review of relevant theoretical and empirical literature on terms of trade is given. Since supply and demand for coffee are important in the determination of the terms of trade, they are discussed at both the international and the domestic level. The need to discuss the international demand and supply of coffee arises because of the fact that Ethiopia is a price taker in the World coffee market. The proposition that commodity and income terms of trade deteriorated during the period under consideration is tested and no deterioration was observed. Finally the impact of the trend and fluctuations in the income terms of trade on major economic variables capital goods imports and gross domestic capital formation are analyzed. Significant relationships are found in all cases except with fluctuations in the income terms of trade for coffee computed from the extrapolated trend and fluctuations in gross domestic capital formation. Show more