Smuggling and supply response: coffee in Ethiopia

Stefan Dercon and Lulseged Ayalew

No 1995-05, CSAE Working Paper Series from Centre for the Study of African Economies, University of Oxford

Abstract: During the 1980s substantial smuggling of coffee has been taking place in Ethiopia. The recent devaluation has raised hopes that substantial quantities of coffee will flow back to the official channels. Data on the incentives to supply to the different channels is collated. A model of official supplies is formulated which nests an empirical test between the smuggling models by Bhagwati and Hansen (1973) and by Pitt (1981). The econometric results favour the latter, and show a small but significant effect of the premium in the black market and a positive total supply response, relative to the main competing crop, chat. The results imply that the increases in export eantings from the devaluation will be quite limited.

Date: 1995
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Published in Ethiopian Journal of Economics, 3(2), October 1994, pp49-82; World Development, 23(10), October 1995, pp.1795-1813

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