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Smuggling and supply response: coffee in Ethiopia

  • Stefan Dercon
  • Lulseged Ayalew

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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Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 1995-05.

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Date of creation: 1995
Date of revision:
Publication status: Published in Ethiopian Journal of Economics, 3(2), October 1994, pp49-82; World Development, 23(10), October 1995, pp.1795-1813
Handle: RePEc:csa:wpaper:1995-05
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  1. 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 257-92, June.
  2. Azam, J.P. & Besley, T., 1988. "General Equilibrium With Parallel Markets For Goods And Foreign Exchange: Theory And Application For Ghana," Papers 143, Princeton, Woodrow Wilson School - Development Studies.
  3. 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 157-94, October.
  4. 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.
  5. Jagdish Bhagwati, 1981. "Alternative theories of illegal trade : Economic consequences and statistical detection," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 117(3), pages 409-427, September.
  6. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  7. Pitt, Mark M., 1981. "Smuggling and price disparity," Journal of International Economics, Elsevier, vol. 11(4), pages 447-458, November.
  8. 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.
  9. 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.
  10. 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.
  11. Bhagwati, Jagdish N & Hansen, Bent, 1973. "A Theoretical Analysis of Smuggling," The Quarterly Journal of Economics, MIT Press, vol. 87(2), pages 172-87, May.
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