ECON 4431W
International Trade
Fall 2013

Outline:

The Effects of Fair-trade Coffee Trade on the Coffee Trade between Ethiopia and the United States

Jun Li 4412061

10-10-2013
OUTLINE - PART A

The Effects of Fair-trade Coffee Trade on the Coffee Trade between Ethiopia and the United States

Just like many other Sub-Saharan African countries, Ethiopia’s economy is mainly based on agricultural products. According to CIA World Factbook, “agriculture in Ethiopia accounts for 46.4% (2011) of the gross domestic product (GDP) and 85% of total employment.” As the major agricultural export crop in Ethiopia for many years, Coffee business contributes about one fourth of the country's foreign exchange earnings in each year, creates millions of working opportunities, supports and feeds more than 25% of the national population. Just like many third world coffee-planting countries, unfair coffee trade caused problems such as over-dependent on one single commodity, environmental damage and labor problems. In Ethiopia, coffee planters and their families have suffered poverty as a result of fluctuating coffee prices for ages.

The implementation of producing and exporting Fair-trade certified coffee from Ethiopia to the United States, which, we believed, economically benefited Ethiopia in terms of contributing to export volume growth and national GDP; and only caused relatively mild reaction in the United States: a still-robust consumer demand and increasing import volume of Ethiopian Coffee.

This study will mainly focus on the effects of Fair-trade coffee trade on the coffee trade between Ethiopia and the United States. Using data provided by UN Comtrade, World Data Bank and CIA World Factbook, we are going to compare some previous year’s data of Ethiopia’s coffee export volume to the U.S., Ethiopia’s total export volume to the rest of the world, and the country’s national GDP growth before and after its implementation of producing and exporting Fair-trade certified coffee in a time period of 1993-2011. In the other hand, we are also going to compare previous years’ data of U.S. coffee export from Ethiopia, previous years’ data of U.S. coffee import from the world, and analysis the Fair-trade coffee trade effect on the U.S. side.

According to the data we collected, we document that, in the long run, the implementation of producing and exporting Fair-trade certified coffee in Ethiopia since 1999 benefited communities in Ethiopia, and had a positive impact on the volume of its coffee export to U.S., its total coffee export and its national GDP. However, in the short run (in the five years after the implementation), there was no sufficient evidence supporting our hypothesis, which is the implementation of producing and exporting Fair-trade certified coffee in Ethiopia economically benefited Ethiopia in terms of contributing to export volume growth and national GDP. Moreover, there was actually a decline of coffee export volume from Ethiopia to U.S during 1998-2002. We suspect this is caused by some externalities affected Ethiopia’s coffee trade during that period of time, such as Ethiopia’s political instability. And a further investigation will be done on this economic phenomenon in the future with more detailed data included.

In the other hand, U.S. consumer’s demand on Ethiopian coffee met the expectation that was stated in our hypothesis, which a still-robust and price inelastic demand on imported Ethiopia Arabica coffee was still there. The data we collected also showed that, in the same period of time, U.S. coffee import volume from the world experienced a decrease in 1997-2002, and then started to grow again after that, which was roughly in line with its trend of coffee import from Ethiopia. To fulfill their growing coffee addiction, high quality imported coffee is becoming a necessity of life for U.S’s middle class. Ethiopian coffee, with its fine exotic taste, plays a considerably big role in U.S. coffee market. And we are going provide data on that in the future.

Bibliography

Central Intelligence Agency. “The World Factbook, Ethiopia < https://www.cia.gov/library/publications/the-world-factbook/geos/et.html >

UN Comtrade. <http://comtrade.un.org/db/>
IMF eLibrary-data. < http://elibrary-data.imf.org/DataExplorer.aspx>
World Bank Data. <http://databank.worldbank.org/data/home.aspx>

Appendix

*Source: http://comtrade.un.org/db/

*Source: http://databank.worldbank.org/data

*Source: http://databank.worldbank.org/data

*Source: http://databank.worldbank.org/data

*Source: http://comtrade.un.org/db/

OUTLINE - PART B

Why Don’t the Poor Save More? Evidence from Health Savings Experiments
By Pascaline Dupas and Jonathan Robinson, American Economic Review 2013, 103(4)
Knowing that many poor in developing countries such as Kenya are constrained in their ability to save money for preventative health purpose, authors of this paper designed a field experiment in rural Kenya in which they randomly varied access to four saving devices with different degree of commitment offered. The last two of the four saving technologies they offered involved a social component, which is called ”ROSCA”. The first experiment treatment (Safe box), respondents were given a simple locked box made out of metal to save their money. In the second experiment treatment (lockbox), respondents were given a passbook and a locked box identical to those in the first treatment, except the key was kept by the program officer. In the third experimental treatment, they encouraged ROSCA participants to create a health pot. In the fourth experimental treatment, every ROSCA participant was encouraged to make regular deposit into a health savings account. According to the results they collected, authors of this paper suggested that existing informal saving mechanisms in rural Kenya are insufficient. And they presented evidence that availableness of saving products such as “lock box” can potentially increase people’s willingness to save money. Authors also found proof that more sophisticated devices that include stronger commitment features might be better suited for those who did not use simple saving account.