Data Definition and Sources
(a) The sample.
Data used for this study consist of 26 annual observations pertaining to the years 1970–95. All the data are on a calendar-year basis.
(b) X: Real exports.
Obtained by deflating export revenue (in billion of CFA francs) with the GDP Deflator. Data for the export values (in CFA francs) for cocoa, robusta coffee, arabica coffee, bananas, timber, aluminum, sawnwood, were provided by the Cameroonian authorities.
(c) P: Relative prices.
The choice of an export price is not straightforward in Cameroon’s case because, until recently, producers of exports received the administratively determined “producer price” which diverged from the export price. To the extent that producer prices accrue to commodity producers and export (world) prices accrue to commodity exporters, the two types of prices constitute incentives to produce and to export, respectively. Hence, the export (world) price is more relevant in modeling exports. This series was obtained by deflating nominal prices (in CFA francs per unit) of each commodity with the GDP deflator. For the total non-oil export, an export price index is used for the P variable, and it is computed as a weighted average of the individual commodities export prices. Source: IMF, Commodity Prices System Database.
(d) UC: Unit cost of production.
Given that the unit cost of production tend to move with the domestic price level, this variable is proxied by the GDP deflator. Source: Cameroonian authorities.
(d) REER: Real effective exchange rate.
The REER is a weighted index of the nominal exchange rates adjusted for the differential between the domestic inflation and the rates of inflation in partner countries using a geometric weighing method (see Wickham (1987) for details). An upward movement in REER denotes an appreciation. Source: IMF, Information Notice System.
(e) OILSHR: Oil sector’s value added as a ratio to GDP.
Source: Cameroonian authorities.
(f) CAPACITY: Domestic productive capacity.
In order to capture capital and technological accumulations over the period considered, this variable is proxied by Cameroon’s gross domestic investment as a percentage of GDP. Source: Cameroonian authorities.
(g) DEMAND: Domestic demand pressure.
The ratio of private consumption to GDP is used to proxy the domestic demand pressure. Source: Cameroonian authorities.
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Prepared by Dhaneshwar Ghura and Soamiely Andriamananjara (summer intern).
The Dutch disease hypothesis postulates that, during an oil boom, traded goods sectors (e.g., agriculture) contract as the real exchange rate appreciates.
In late 1980s, the entry of new southeast Asian suppliers into the world market drove the world prices of cocoa and coffee down. Cameroon was faced with tough competition in the world market since these suppliers used more advanced technology than that used in Cameroon.
The parity of the CFA franc was changed from CFAF 50 to CFAF 100 per French franc.
This problem arises both from a resource-movement effect and a spending effect (Corden (1984)). The spending effect is attributed to the increase in purchasing power, reflected in an increased demand for both traded and nontraded goods. As noted by Benjamin (1990, p. 78), the “new demand for traded goods is met by imports at constant world prices, but the excess demand for nontraded goods causes their price to rise relative to those of traded goods.” The resource-movement effect stems from the upward pressure on the domestic resource costs associated with the production of nontraded goods. In the case of Cameroon, Benjamin and others (1989) note that the oil sector is an enclave with respect to the rest of the economy, as it uses mainly imported factors of production, including labor. Thus, movements in the relative price of nontraded good would have been most likely dominated by the spending effect.
It should be noted that the Johansen-Juselius (1990) procedure is generally superior to the Engel-Granger two-step method since it does not impose a single linear cointegrating vector. However, the Engel-Granger method can be used in the context of a single equation model if it produces theoretically sound and statistically significant results that can be confirmed by the Johansen-Juselius procedure.
The discussion of the short-run dynamics is excluded from this study. Nevertheless, the analysis of the short-run properties of the model using the Error Correction Mechanism (ECM) provides evidence in favor of convergence toward the long-run equilibrium for each commodity.
The first step of the Engel-Granger procedure, as well as the Johansen methodology, suggests that all the variables in the long-run relationship have to be I(1).
Where there was evidence of autocorrelation, the Cochrane Orcutt iterative technique was used to correct for it. In order to allow for the possibility of delayed export responses, different combinations of the lagged values of the explanatory variables were included in the estimating equations.
The framework developed by Johansen is used in order to ensure that the cointegration vector obtained from the Engel-Granger procedure for each commodity actually lies in the cointegrating space. In this regard, the vector is introduced as a restriction in the Johansen analysis, and the validity of this cointegration restriction is tested using the log-likelihood ratio test. This exercise is conducted for each export commodity as well as for the total non-oil exports. The analysis largely accepts the restriction for total non-oil exports, robusta coffee, arabica coffee, bananas, timber, aluminum, and sawnwood. The cointegrating restriction for cocoa is marginally accepted.
Bond (1983) reported an average long-run elasticity of 0.2 for the major export crops in Africa. Jaeger (1991) obtained price elasticities ranging from 0.1 to 0.3 for aggregate agricultural export supply. In a survey of price responsiveness of agricultural commodities, Binswanger (1989) reported that aggregate agriculture is price inelastic in sub-Saharan Africa. In addition, Ghura and Grennes (1995) reported price elasticities of 0.65 and 0.68 for total and primary exports, respectively.