Economic Analysis Of Determinants Of Variability Of Tea Export (1982-2012) In Rwanda

Abstract

Tea has been cultivated and consumed in China for more than two thousand years and tea growing in Rwanda started in 1952. By 2002 tea became Rwanda’s largest export, with export earnings from tea reaching US$ 18 million equating to 15,000 tons of dried tea. The problem addressed in this study is that tea farmlands increase has been constrained by population growth in Rwanda, impacting on the quantity supplied and tea exportation is volatile and very much influenced by real effective exchange rate, Income of major trading partners, total investment as a proportion of GDP, tea world market price, the coffee worldiv price among others. This is happening despite the effort made by the government of Rwanda aiming to increase both tea farmland and the quantities exported in order to gain from tea trading. In addition to the above highlighted issues, there are little recent empirical researches investigating factors affecting tea export for a long-run period. The purpose of the study was to analyse the export of tea in Rwanda for the period of 1982-2012. The study aimed to establish whether the volatility in quantity of tea exported is related to world price fluctuations and/or other factors affecting the quantity of tea exported. The study applied a causal (explanatory) research design, with an objective to explain the cause-effect relationship between variables. Since the study used a time series data analysis, secondary data were collected from different sources. Data analysis was done using ordinary least squares to estimate the model and establish trends of variables included in the study. Recursive Residual test and Chow test were applied in analysing the presence of structural change. To investigate the factors affecting tea export of Rwanda, various tests were done: The unit root tests were conducted using the Augmented Dickey- Fuller (ADF), the Phillips-Perron (PP) and correlogram tests. Co-integration test was conducted using the Johansen’s procedure, as series were found to be integrated of the same order in Phillips-Peron test and co-integrated; Vector Error Correction Model (VECM) was estimated to adjust the series into their both short-run and long-run equilibrium conditions. Heteroscedasticity test was done in order to assess whether stochastic error terms were constant or not, autocorrelation test was done to check if stochastic error terms were correlated for different period of time. The study used export theory. A regression model was used as a production function of the quantity of tea exported as endogenous variable and tea world price, coffee world price, Gross Domestic Product of major importing countries, Real Effective Exchange Rate, investment as proportion of GDP as exogenous variables. The study depicted that in the periods of 1988- 1989, 1992-1995 and 2001-2004 structural changes occurred in tea export due to Structural Adjustment Programmes (SAPs) and decline in price of coffee, liberation war and Tutsi genocide and decline in tea world price respectively. The research concludes that non causality in the long term among all variables may be possible because prior to later 80s it was pre-SAPs economy period thus export was totally controlled one. Short run causality is possible because after 80s, in short period a decline in world tea price may lead to increase in export in the sense that the demand increases. The study recommends the government to help in improving investments in factories and all stakeholders to prioritise ease forward selling or contracting and widening niche markets for tea products.