Determinants of Ugandan coffee export between 1965 and 2021

Abstract

This study examined the determinants of Ugandan coffee export between 1965 and 2021. This study was triggered by an increasing trend of Ugandan coffee exports over the last decade. The hypotheses tested were that; the series have a unit root therefore non-stationary, constant coefficients across the sample (no structural breaks), zero cointegrating vectors, the independent variables do not granger cause coffee export, and no autocorrelation at lag order selected. The study applied cointegration technique and error correction modeling to Ugandan annual data starting from 1965 to 2021. The results indicate the existence of long-run relationships. All the series were non stationary. The vector error correction model results showed non-significant short run ca. A negative error correction term (-0.798303) and significant (p-value = 0.001) imply that there is a long run causal effect from the independent variables that is; domestic production, foreign direct investment, gross fixed capital formation, trade openness, official exchange rate and GDP to the dependent variable (coffee export).The trace statistics showed one cointegrating equation at 5% significance which implied the presence of one cointegrating relationship. A p-value of 0.001 showed that there was a long run causality running from the independent variables ; domestic coffee production, foreign direct investment, gross fixed capital formation, official exchange rate, Gross domestic product, and trade openness to the dependent variable (coffee exports) .This confirmed long-run causal relationship between the variables. There was bidirectional Granger causality from DOM prod to coffee exports and unidirectional granger causalities from GDP and gross fixed capital formation to coffee exports. Results from forecast error decomposition revealed that change in coffee exports was explained more by its previous values than other factors. The effect of change in export of coffee on its future values was observed to have an increasing behavior ranging from year 2 (62.7%) to 67.7% in ten years. Generally, the changes in the volume of exports were most affected by its previous values followed by domestic production, trade openness ,gross fixed capital formation, official exchange rate, Gross domestic product and foreign direct investment in that order. The forecasting model predicted an anticipated increase from around 6,200,000 (60kg bags of coffee) to around 7,700,000, suggesting a relatively increasing trend in the next ten years. The study recommends Policy makers to consider policies that stimulate economic growth and investment in the coffee sector. For instance, measures to promote GDP growth, domestic coffee production, and foreign direct investment could have a positive impact on coffee exports, the government to consider Long-Term Planning. Given the evidence of long-run causality from the independent variables to coffee exports, long-term planning for the coffee sector is essential. Efforts should be made to sustain and enhance the factors that positively affect coffee exports; the researcher also recommends the responsible bodies to implement short-term interventions and policies that can stimulate immediate improvements in coffee export performance during economic fluctuations.