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Economic Impacts of El Niño Southern Oscillation: Evidence from the Colombian Coffee Market

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  • Andrea BASTIANIN
  • Alessandro LANZA
  • Matteo MANERA

Abstract

We develop a structural econometric model to study the impacts of El Niño Southern Oscillation (ENSO) on Colombian coffee production, exports and price. Our empirical specification is consistent with an economic model of the coffee market that, in the short-run, is characterized by a downward-sloping demand curve and by a vertical supply curve. This allows to study the effects of unpredictable innovations to ENSO on the Colombian coffee price, while controlling for shocks arising from both the supply and the demand-side of the market. We show that El Niño events (i.e. positive shocks to ENSO) might be beneficial for production and exports and tend to decrease the price of coffee. On the contrary, La Niña conditions (i.e. negative shocks to ENSO) depress coffee production and exports and increase price. However, the overall impact of ENSO shocks is small. In the short-run, ENSO shocks explain 2% of the fluctuations of coffee production and 0.2% of the variability of the price of coffee. In the long-run, these percentages rise to 8% and 6%, respectively. Both in the short-run and in the long-run, demand-side shocks are more relevant than supply-side shocks in explaining the dynamics of the price of coffee.

Suggested Citation

  • Andrea BASTIANIN & Alessandro LANZA & Matteo MANERA, 2016. "Economic Impacts of El Niño Southern Oscillation: Evidence from the Colombian Coffee Market," Departmental Working Papers 2016-14, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2016-14
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    More about this item

    Keywords

    Coffee; Colombia; El Niño; ENSO; La Niña; Structural VAR;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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