A Dynamic Panel Gravity Model Application on the Determinant Factors of Ethiopia’s Coffee Export Performance

Ethiopia’s coffee export earning percentage share in the total export has been rapidly waning over the last decades while it is the first commodity in currency grossing of the country. Since, this study analyses the determinant factors of Ethiopia’s coffee exports (ECE) performance, in the dimension of export sales, via a more realistic model application, dynamic panel gravity model. It commences with the disintegration of the determinant into supply- and demand-side factors. It used short panel data that comprise 71 countries of consistent Ethiopia’s coffee importers for the period of 11 years from 2005 to 2015. The panel unit root test of Harris–Tzavalis was made for each variable and applied the first difference transformation for the variables that had a unit root. The system model of a linear dynamic panel gravity model was specified and estimated with two-step general method moment estimation approach. The model results suggested that lagged ECE performance, real gross domestic product (GDP) of importing countries, Ethiopian population, Ethiopian real GDP, openness to trade of importing countries, Ethiopian institutional quality, and weighted distance were found to be the determinant factors of Ethiopia’s coffee exports performance. The study also implied policies that would promote institutional quality or permits favorable market environments, supply capacity, trade liberalization, and destination with relatively cheaper transportation costs in order to progress Ethiopia’s coffee exports performance.