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Empirical Evidences from a Coffee Paradox: An Export Supply/Price Asymmetry Approach

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  • Kang, Hyunsoo
  • Kennedy, P. Lynn
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    Abstract

    This paper aims to determine the solidity of the notion of the "coffee paradox" using annual data from 1977 to 2007. In the confines of an export supply model, we analyze the effects of export coffee price on export volume. Price and profit equation are used to determine the effects of market power on export coffee price and measure changes in the retail and export price. We also estimate the elasticity of transmission and price asymmetry as a means of verifying the "coffee paradox." Ordinary Least Square (OLS), Instrumental Variables (IV), and simultaneous equation with Seemingly Unrelated Regressions (SUR) methods of econometric analysis are employed. Empirical results suggest that the world coffee market is characterized by "coffee paradox" due to different changes between retail and export prices of coffee, and that it is the existence of market power in importing countries that is the main contributor to the condition of price asymmetry.

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    Bibliographic Info

    Article provided by Korea Rural Economic Institute in its journal Journal of Rural Development/Nongchon-Gyeongje.

    Volume (Year): 32 (2009)
    Issue (Month): 3 (July)
    Pages:

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    Handle: RePEc:ags:jordng:90687

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    Related research

    Keywords: export supply model; coffee paradox; elasticity of transmission; price asymmetry; price equation; profit equation; Agribusiness; Agricultural and Food Policy; Consumer/Household Economics; Demand and Price Analysis; International Relations/Trade;

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    1. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31, March.
    2. Krivonos, Ekaterina, 2004. "The impact of coffee market reforms on producer prices and price transmission," Policy Research Working Paper Series 3358, The World Bank.
    3. Pierre Kohler, 2006. "The Economics of Fair Trade: For Whose Benefit? An Investigation into the Limits of Fair Trade as a Development Tool and the Risk of Clean-Washing," IHEID Working Papers 06-2007, Economics Section, The Graduate Institute of International Studies, revised Oct 2006.
    4. Mundlak, Yair & Larson, Donald F, 1992. "On the Transmission of World Agricultural Prices," World Bank Economic Review, World Bank Group, vol. 6(3), pages 399-422, September.
    5. Nathan S. Balke & Stephen P. A. Brown & Mine YĆ¼cel, 1998. "Crude oil and gasoline prices: an asymmetric relationship?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 2-11.
    6. Morisset, Jacques, 1997. "Unfair trade? Empirical evidence in world commodity markets over te past 25 years," Policy Research Working Paper Series 1815, The World Bank.
    7. repec:cdl:agrebk:440237 is not listed on IDEAS
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