Empirical Investigation into Spatial Integration Without Direct Trade: Comparative Analysis Before and After the Establishment of the Ethiopian Commodity Exchange

Abstract

This paper presents a comparative analysis of the spatial price cointegration of coffee markets in Ethiopia in the pre and post Ethiopian Commodity Exchange (ECX) era using the autoregressive distributed lag (ARDL) cointegration framework. The study takes into consideration a market condition in which government policy restricts arbitrage coffee trade between coffee producing areas. Using coffee price data from 1998–2013 and applying a bounds test approach and Toda–Yamamoto Granger causality test, the study finds that the establishment of ECX has strengthened regional integration rather than a national harmony between producer markets. We also find evidence that, since the establishment of ECX, an opportunity was created for high quality coffee to dominate price formation while also allowing lower quality coffee producing areas to establish themselves. The study underlines the importance of market transparency and exchange of price information between producer markets.

Acknowledgment

The authors acknowledge the comments received from the anonymous reviewers and the editor.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by NICHE (the Netherlands Initiative for Capacity development in Higher Education) funded by the Dutch Government and administered by NUFFIC (Grant: NICHE/ETH/019). The authors highly acknowledge this financial support.