Market Institutions and Price Relationships: The Case of Coffee in the Ethiopian Commodity Exchange

22 Pages Posted: 16 Apr 2020

See all articles by Manuel A. Hernandez

Manuel A. Hernandez

International Food Policy Research Institute (IFPRI)

Shahidur Rashid

International Food Policy Research Institute (IFPRI)

Solomon Lemma

International Food Policy Research Institute (IFPRI)

Tadesse Kuma

Ethiopian Development Research Institute (EDRI)

Date Written: April 2017

Abstract

While the Ethiopian Commodity Exchange (ECX) is widely considered a successful market institution, very little rigorous empirical investigation has been done on it. This paper contributes to filling this knowledge gap. Using a unique set of spatially disaggregated prices for five different coffee varieties, we examine how the ECX has influenced the dynamics of international and domestic prices for coffee, the largest traded commodity in terms of trade value on the exchange floor. We follow a multivariate Generalized Autoregressive Conditional Heteroscedasticity (GARCH) approach to assess the extent of market interdependence (conditional correlations) and volatility transmission. We also evaluate structural changes in price dynamics over time. Our results suggest that, contrary to popular media stories, the ECX's success in strengthening coffee price relationships has been limited. We discuss the underlying reasons and implications of this finding.

Keywords: Market interdependence, volatility transmission, coffee, Ethiopian Commodity Exchange

Suggested Citation

Hernandez, Manuel A. and Rashid, Shahidur and Lemma, Solomon and Kuma, Tadesse, Market Institutions and Price Relationships: The Case of Coffee in the Ethiopian Commodity Exchange (April 2017). American Journal of Agricultural Economics, Vol. 99, Issue 3, pp. 683-704, 2017, Available at SSRN: https://ssrn.com/abstract=3577048 or http://dx.doi.org/10.1093/ajae/aaw101

Manuel A. Hernandez (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Shahidur Rashid

International Food Policy Research Institute (IFPRI) ( email )

United States
202-862-6498 (Phone)
202-467-4439 (Fax)

HOME PAGE: http://www.ifpri.org/staffprofile/shahidur-rashid

Solomon Lemma

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Tadesse Kuma

Ethiopian Development Research Institute (EDRI) ( email )

P.O. Box 2479
Addis Ababa
Ethiopia

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