Does Devaluation Matter? Evidence from Ethiopian Coffee Export

Abstract

Devaluation of currency has been stipulated and utilized increasingly as a stabilization device in developing countries, as part of International Monetary Fund (IMF) mainstream adjustment programs. The policy measure of currency devaluation has aimed to make export products more competitive and permutes demand towards domestically produced goods eventually boosting the overall output of the country. The objective of this work is to add to the existing empirical literature on the effect of currency devaluation on the value of some export items. It examines the relationship between devaluation of Ethiopian Birr and the value of coffee export during the period 1992/93-2011/12. During these span of time, the National Bank of Ethiopia took several policy measures to devalue birr. Empirical studies made both on developing and developed countries indicated mixed results about the effect of currency devaluation on the value of trade balance in general and on the value of export items in particular. This study uses simple linear regression analysis to observe the association between the value of coffee export of Ethiopia and the devaluation of Birr pertaining to the period 1992/93-2011/12. The statistical results point out that there is strong positive correlation between currency valuation and value of coffee export during the study period.