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Explaining Ghana's Recent Good Cocoa Karma: Smuggling Incentive Argument

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  • Armah, Stephen E.

Abstract

The paper contends that the current boom in cocoa exports from Ghana is primarily in response to reversal in price incentives to smuggle Ghana cocoa to La Cote d’Ivoire and not due to productivity gains in the Ghana cocoa supply chain. Using recent data; ADF, Perron and KPSS tests of stationarity; Engle and Granger and Johansen co-integration tests; Granger causality tests; single and vector error correction models; as well as partial adjustment models, we estimate the Ghana cocoa supply response to determine the most pertinent factors that explain the cocoa boom. Different from previous research, the VECM and ECM models are modified to be more reflective of current conditions in the Ghana cocoa sector by including prices of relevant substitutes in cocoa production. Furthermore we carefully account for the time series properties of the data and address endogeneity problems that plague the estimation. For example, in testing for the order of integration of different series, we account for the possible existence of structural breaks. We find that the “price incentive to smuggle” argument adequately explains the current boom in Ghana cocoa supply response. This finding is important because it questions claims in the literature that substantial productivity gains in the cocoa sector in response to good policy is the main reason behind the Ghana cocoa export boom.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6359.

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Date of creation: 2008
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Handle: RePEc:ags:aaea08:6359

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Keywords: International Relations/Trade;

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  1. Hakan Berument & N. Nergiz Dincer, 2004. "The effects of exchange rate risk on economic performance: the Turkish experience," Applied Economics, Taylor and Francis Journals, vol. 36(21), pages 2429-2441.
  2. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  3. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  4. Deepak Lal, 1993. "Poverty and Development," UCLA Economics Working Papers 707, UCLA Department of Economics.
  5. Aleš BulÌř, 2002. "Can Price Incentive to Smuggle Explain the Contraction of the Cocoa Supply in Ghana?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 11(3), pages 413-439, September.
  6. Abdulai, Awudu & Rieder, Peter, 1995. "The Impacts of Agricultural Price Policy on Cocoa Supply in Ghana: An Error Correction Estimation," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 4(3), pages 315-35, December.
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