Revealed Comparative Advantage In Coffee Export Trade

Ghana is one of the countries involved in international trade due to her abundant natural resources and fertile land for agricultural cultivation.The country exports fifty-eight commodities: reported by the Observatory Economic Complexity as 127 th most complex country.Currently,Ghana ranks as the second largest exporter of cocoa to her neighbor Cote D'Ivoire in the cocoa export trade.Performance in the coffee export which demands the same factor conditions to produce and export has not been great news for the country.This research conducts an analysis on the current comparative advantage index of Ghana in the coffee export trade with four other key exporting countries.To do this,the theories of comparative advantage assisted with the significant factors that can answer the questions of high export performance factors of the four key exporting countries.The theories from David Ricardo,Ohlin and Heckscher,Michael Porter and Isaac Newton's law of gravity applied in international trade today served as the focus point for this paper.This paper veered off the norm of using revealed comparative advantage indices to assess the comparative advantage in many sectors: it gives an insight into how the index effectively tests comparative advantage in a homogenous industry.Five comparative advantage indices,modeled from the original Bela Balassa model,is used to compute various revealed comparative advantage index to gain a wider perspective of the countries due to their symmetric and cross-sectional capabilities for comparison.A panel revealed comparative advantage is a model introduced in this research to take on factors of comparative advantage hypothesized by trade theoriesThe gravity model provides an assessment of trade intensity factors that significantly affect trade between Ghana and her market destination compared with that of the other key exporting countries in the same market.The gravity model;is used in an expanded form to include other factors such as the cost to export and import,the number of days to export and import and the number of documents to export and import as well as the normal gross domestic product,population,exchange rate,language and distance.A cross-sectional time series data of sixteen years are regressed on the revealed comparative advantage index and eleven years data for the trade intensity analysis using panel data econometric model.The feasible least squares estimator emerged as the best estimator to draw the conclusion on the panel revealed comparative advantage model while the random effects estimator for the gravity model analysis due to its ability to handle distance variable as suggested by researchers and evident in this research.Stata-a computer statistical application assisted with the statistical analysis for all the models.Results from the indices(BRCAI,SRCAI,NRCAI,RC and ARCAI)show that Ghana's comparative advantage is less than unity and unstable.The country recorded lower relative competitive index of 2.887 compared to the key exporters that recorded figures greater than 3.00,an indication that the country seems to be specializing in other sectors other the coffee industry.An accurate reflection of the current state of the country due to a high growth rate in the mining and crude oil industry.Successive governments have focused on social intervention programs such as free school feeding programs,free education at the basic level,livelihood empowerment against poverty initiative,national health insurance intervention programs and others.The comparative advantage indices for the other key exporting countries are high,approximately equals one under the symmetric revealed comparative advantage index.The comparative advantage indices for the other key exporters showed fewer variations,which is an indication of much stability and sound relative competitiveness.The indices suggest that these key exporting countries are specializing in the production and export of the coffee commodity.The panel revealed comparative advantage results indicate that key exporting countries' comparative advantage in the coffee export trade lies in factor endowment in labor as in the case of Cote D'Ivoire,wider defined agriculture sector-a significant factor in Vietnam and Cote D'Ivoire.Domestic price as well as Technology and domestic consumption in the key exporting countries such as Vietnam and Cote D'Ivoire recorded significant comparative advantage over Ghana,these are as a result of effective pricing system,vibrant supporting industries and efficient use of technology.Results from the gravity model indicate that Ghana's trade intensity with Belgium lies in Belgium's GDP and population.Other factors such as the number of days to export,the number of documents to import from Belgium and the cost to export to and import in Belgium does not have an adverse effect on trade flow.However,the number of days to import in Belgium Ghana's population reduces the trade intensity.The key coffee exporters on the other hand,GDP and Population of Belgium does not intensify trade flow.Other than these two,all other factors significantly increase trade flow between Belgium and the other exporting countries except Cote D'Ivoire that have GDP and Population of Belgium as well as the number of documents to export as significant factors that intensify trade flow with Belgium.Belgium,as a secondary market for coffee exports to various European countries coupled with her free zone area,only her GDP,distance,and Population adversely affect trade intensity between the coffee exporting countries like Indonesia and Vietnam that are wider away compared to Ghana,Brazil and Cote D'Ivoire.The trade intensity between Italy and Ghana as well as the other key exporting countries are not different from that of Belgium in terms of GDP and Population.However,the number of days to export to and import Italy,the number of documents to export to and import as well as the cost to export to and import to Italy adversely affect trade flow between Ghana and Italy but vice versa for most of the key coffee exporters.For Ghana to gain high revealed comparative advantage and compete in the coffee export trade,there will an urgent need to open the coffee export and buying sector for private participation-a practice in Colombia.Reducing the number of documents to export,reducing border and shipment related costs,efficient use of technology,establishing coffee stabilization fund and a coffee stock market,empowering supporting industries to increase domestic consumption and cultivating coffee drinking culture are paramount among other factors.