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Decomposing terms of trade fluctuations in Ethiopia

  • Josef Loening
  • Masato Higashi

This article proposes a technique to decompose short-run fluctuations in the terms of trade. Using Ethiopia as an example, we decompose the commodity terms of trade into various components to measure the impact of price and volume shifts as well as export diversification. We use monthly data from the past decade, including periods during the global food and financial crises. Our findings suggest that diversification out of traditional coffee exports to other export commodities successfully mitigated the terms of trade shock. Continued export diversification will be beneficial.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 18 (2011)
Issue (Month): 13 ()
Pages: 1219-1224

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Handle: RePEc:taf:apeclt:v:18:y:2011:i:13:p:1219-1224
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  1. Blattman, Christopher & Hwang, Jason & Williamson, Jeffrey G., 2007. "Winners and losers in the commodity lottery: The impact of terms of trade growth and volatility in the Periphery 1870-1939," Journal of Development Economics, Elsevier, vol. 82(1), pages 156-179, January.
  2. Marianne Baxter & Michael A. Kouparitsas, 2006. "What Can Account for Fluctuations in the Terms of Trade?," International Finance, Wiley Blackwell, vol. 9(1), pages 63-86, 05.
  3. Loening, Josef L. & Durevall, Dick & Ayalew Birru, Yohannes, 2009. "Inflation Dynamics and Food Prices in an Agricultural Economy: The Case of Ethiopia," Working Papers in Economics 347, University of Gothenburg, Department of Economics.
  4. Paul Cashin & Catherine A. Pattillo, 2000. "Terms of Trade Shocks in Africa: Are they Short-Lived or Long-Lived?," IMF Working Papers 00/72, International Monetary Fund.
  5. Lloyd, P. J. & Procter, R. G., 1983. "Commodity decomposition of export-import instability : New Zealand," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 41-57.
  6. Fátima Cardoso & Paulo Soares Esteves, 2008. "What is behind the recent evolution of Portuguese terms of trade?," Working Papers w200805, Banco de Portugal, Economics and Research Department.
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