Determinants of export volumes of Uganda’s coffee, 1991-2007

Abstract

The study set out to investigate the determinants of export volumes of Uganda’s coffee in an export supply framework. The hypotheses tested were that; an appreciation of real exchange rate and an increase in real interest rate reduce coffee export volume and an increase in international coffee prices, gross domestic product, and gross capital formation increase coffee export volume.

The study applied cointegration technique and error correction modeling to Ugandan quarterly data starting from 1991:1 to 2007:4. The results indicate the existence of long-run relationships. The econometric results show that the real effective exchange rate is negatively correlated with coffee export volumes with elasticity of -2.164. The international coffee price has a positive and statistically significant effect on coffee export volumes with price elasticity of 0.789. However, real interest rate, gross domestic product and gross capital formation have statistically insignificant effects in the short-run.

From the results, it is concluded that an increase in international coffee price and gross domestic product increase coffee export volumes while real effective exchange rate depreciation and increase in real interest rate reduce the coffee export volumes. The study recommends the establishment of agreements with international coffee buyers to increase prices, prevent exchange rate depreciation, expansion in gross domestic product and reduction in interest rate on loans to producers and exporters thereby encouraging coffee production and increase in coffee exports.