Does Ethiopian Competitive in Export of Coffee so far and What Determines it? Evidence from Revealed Comparative Advantage and Autoregressive Distributed Lag Model

As an export commodity coffee industry contributes to the economies of both exporting and importing countries. The aim of the study involves competitiveness and determinant of coffee export in Ethiopia through the period of 19902018 observations. To explain the level of comparative advantage and competitiveness respectively Revealed Comparative Advantage and Syematric Revealed Comparative Advantage were employed. To capture determinans of coffee ARDL model with bound testing to co-integration approach was employed to investigate the long-run association between Ethiopian total coffee export in bags (60kg each) with domestic coffee production, world coffee price, real exchange rate, FDI, world coffee production and price ratio. Even though Ethiopia has the comparative advantage in the export of coffee, however, the share it in the international market low in amount and not inlined with RCA. Bound testing to co-integration approach result confirmed the existence of a long-run relationship between total coffee exports of Ethiopia with its independent variables. The analysis pointed out that in the long run the extent of domestic coffee production, world price, and real exchange rate positively and significantly affects total coffee export. However, FDI, price ratio, world production of coffee have negative significant effects. In the short-run Ethiopian total coffee export defined as a positive significant function of domestic coffee production and real exchange rate positive but insignificant effect with Level of RCA and world price as well as a negative function of FDI, price ratio, and world production of coffee. Coefficient Error Correction Model (ECM (-1)) was negative and significant with a value of 134.4 % of the adjustment would make each year and return to its long-run equilibrium after 1.3 years. The policy implication calls for addressing issues of the combined effect of the policy setting, institutions, and market failures to avoid the evil effect of the sector.