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Empirical Investigation into Spatial Integration Without Direct Trade: Comparative Analysis Before and After the Establishment of the Ethiopian Commodity Exchange

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  • Tinsae Demise
  • Valéri Natanelov
  • Wim Verbeke
  • Marijke D’Haese

Abstract

This paper presents a comparative analysis of the spatial price cointegration of coffee markets in Ethiopia in the pre and post Ethiopian Commodity Exchange (ECX) era using the autoregressive distributed lag (ARDL) cointegration framework. The study takes into consideration a market condition in which government policy restricts arbitrage coffee trade between coffee producing areas. Using coffee price data from 1998–2013 and applying a bounds test approach and Toda–Yamamoto Granger causality test, the study finds that the establishment of ECX has strengthened regional integration rather than a national harmony between producer markets. We also find evidence that, since the establishment of ECX, an opportunity was created for high quality coffee to dominate price formation while also allowing lower quality coffee producing areas to establish themselves. The study underlines the importance of market transparency and exchange of price information between producer markets.

Suggested Citation

  • Tinsae Demise & Valéri Natanelov & Wim Verbeke & Marijke D’Haese, 2017. "Empirical Investigation into Spatial Integration Without Direct Trade: Comparative Analysis Before and After the Establishment of the Ethiopian Commodity Exchange," Journal of Development Studies, Taylor & Francis Journals, vol. 53(4), pages 565-583, April.
    • Handle: RePEc:taf:jdevst:v:53:y:2017:i:4:p:565-583
    DOI: 10.1080/00220388.2016.1187722
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    1. Søren Johansen & Katarina Juselius, 1988. "Hypothesis Testing for Cointegration Vectors: with Application to the Demand for Money in Denmark and Finland," Discussion Papers 88-05, University of Copenhagen. Department of Economics.
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