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Smuggling and supply response: Coffee in Ethiopia


  • Dercon, Stefan
  • Ayalew, Lulseged


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.
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Suggested Citation

  • Dercon, Stefan & Ayalew, Lulseged, 1995. "Smuggling and supply response: Coffee in Ethiopia," World Development, Elsevier, vol. 23(10), pages 1795-1813, October.
  • Handle: RePEc:eee:wdevel:v:23:y:1995:i:10:p:1795-1813

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    References listed on IDEAS

    1. Bevan, D. L. & Bigsten, A. & Collier, P. & Gunning, J. W., 1987. "Peasant supply response in rationed economies," World Development, Elsevier, vol. 15(4), pages 431-439, April.
    2. Jagdish Bhagwati, 1981. "Alternative theories of illegal trade : Economic consequences and statistical detection," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 117(3), pages 409-427, September.
    3. Azam, Jean-Paul & Besley, Timothy, 1991. "Peasant supply response under rationing: The role of the food market," European Journal of Political Economy, Elsevier, vol. 7(3), pages 331-343, October.
    4. Azam, Jean-Paul & Besley, Timothy, 1989. "General equilibrium with parallel markets for goods and foreign exchange: Theory and application to Ghana," World Development, Elsevier, vol. 17(12), pages 1921-1930, December.
    5. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
    6. Jagdish Bhagwati & Bent Hansen, 1973. "A Theoretical Analysis of Smuggling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(2), pages 172-187.
    7. Dercon, Stefan, 1993. "Peasant Supply Response and Macroeconomic Policies: Cotton in Tanzania," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 2(2), pages 157-194, October.
    8. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
    9. Devarajan, Shantayanan & Jones, Christine & Roemer, Michael, 1989. "Markets under price controls in partial and general equilibrium," World Development, Elsevier, vol. 17(12), pages 1881-1893, December.
    10. Askari, Hossein & Cummings, John Thomas, 1977. "Estimating Agricultural Supply Response with the Nerlove Model: A Survey," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 257-292, June.
    11. Marian E. Bond, 1983. "Agricultural Responses to Prices in Sub-Saharan African Countries (Réactions du secteur agricole aux prix en Afrique au sud du Sahara) (Reacciones de la agricultura ante los precios en los países de," IMF Staff Papers, Palgrave Macmillan, vol. 30(4), pages 703-726, December.
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    Cited by:

    1. Ana María Ibañez Londoño & Juan Carlos Muñoz Mora & Philip Verwimp, 2013. "Abandoning Coffee under the Threat of Violence and the Presence of Illicit Crops. Evidence from Colombia," HiCN Working Papers 150, Households in Conflict Network.
    2. Dercon, Stefan, 2006. "Economic reform, growth and the poor: Evidence from rural Ethiopia," Journal of Development Economics, Elsevier, vol. 81(1), pages 1-24, October.

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