Determinants of Agricultural Export Trade: A Co-Integration Analysis for Cotton Lint Exports from Chad

Abstract

Following the dramatic decline in Chad's performance for production and export of cotton lint (from leading producer and among leading exporters in the 1960s to being at the bottom in rank among the C-4 countries of WCA since 1998), use is made of the Johansen Full Information Maximum Likelihood test to identify and estimate the magnitude and effects of key determinants of exports from the country. In this regard, I defined and estimated two primary co-integrating and error correction equations using volume and value of exports as dependent variables in the respective equations. Diagnostic tests performed revealed that the estimates observed are stable, and residuals for the respective models are normally distributed, non-serially correlated and homoscedastic. Results of the study show that cotton production, competitiveness of the country in exports of the commodity, volume of world exports of the commodity, and export price faced by the country are key determinants of export growth. Policies implemented in both the internal and external environments are noted to have had more harmful than beneficial implications for the cotton industry. In as much as volume of exports is found to be driven by both internal and external forces, the value of exports on the other hand is found to be driven more by external forces than internal forces. To awaken the cotton export industry from its present slumber, measures should be put in place to significantly increase production and improve on the country's competitiveness in export of the commodity. In addition, measures should be put in place to address existing inefficiencies in the domestic policy environment, as this could suitably position the country to benefit from increases in international trade. Minimization of distortions on the international market for cotton lint could as well play a significant role in reviving the cotton export industry for Chad.