Determinants of Clove Exports in Zanzibar: Implications for Policy

Year 2022, Volume: 4 Issue: 2, 127 - 147, 29.12.2022

Samwel J. Kabote , Jires Tunguhole

https://doi.org/10.54821/uiecd.1180312

Cited By: 1

Abstract

Clove is one of the high value spices that have supported the economy of Zanzibar for many decades since the 18 th Century. However, clove production and exports have been declining significantly and consistently since the 1980s. The declining of the clove exports most likely jeopardizes the Zanzibar efforts to improving human development with positive changes in living standards. This paper analyses factors for the declining trend in clove exports using time series data that were collected between 1980 and 2020 and analysed using the vector error correction model, complemented with qualitative data collected from 39 key informants. The time series results show that clove production, producer price, world price, Gross Domestic Product (GDP), and Exchange Rate had positive and statistically significant impact on clove exports in a long-run at 1% level of significance; while Foreign Direct Investment, human population and Cross Capital Formation showed significant negative impact. Only inflation showed insignificant negative impact. Based on qualitative results, there were two major determinants: (i) factors that affected clove production, and (ii) low and fluctuation of the clove price. The time series results coincided with qualitative information. We conclude that some factors affected clove exports indirectly through clove production. Other factors affected exports through fluctuation of clove price. Therefore, we recommend an integrated policy approach that aims at improving clove production and price stabilization in order to rectify the decreasing trend in clove exports.

Keywords

Cloves, Exports, Vector Error Correction Model, Zanzibar

Zanzibar'da Karanfil İhracatının Belirleyicileri: Politika Önerileri

Abstract

Karanfil, 18. Yüzyıldan bu yana onlarca yıldır Zanzibar ekonomisini destekleyen yüksek değerli baharatlardan biridir. Ancak, karanfil üretimi ve ihracatı 1980'lerden bu yana önemli ölçüde ve sürekli olarak azalmaktadır. Karanfil ihracatındaki düşüş, Zanzibar'ın yaşam standartlarında olumlu değişikliklerle insani gelişmeyi iyileştirme çabalarını tehlikeye atmaktadır. Bu çalışma, 1980 ve 2020 yılları arasında vektör hata düzeltme modeli kullanılarak analiz edilen zaman serisi verilerini kullanarak karanfil ihracatındaki düşüş eğiliminin faktörlerini analiz etmekte ve 39 önemli bilgi kaynağından toplanan nitel verilerle tamamlanmaktadır. Zaman serisi sonuçları, karanfil üretimi, üretici fiyatı, dünya fiyatı, Gayri Safi Yurtiçi Hasıla (GSYİH) ve Döviz Kurunun karanfil ihracatı üzerinde uzun vadede %1 önem düzeyinde pozitif ve istatistiksel olarak anlamlı bir etkiye sahip olduğunu göstermektedir. Doğrudan yabancı yatırım, insan nüfusu ve brut sermaye oluşumu ise önemli ölçüde olumsuz etki göstermiştir. Sadece enflasyon önemsiz negatif etki göstermiştir. Analiz sonuçlarına göre i) karanfil üretimini etkileyen faktörler ve (ii) karanfil fiyatının düşük ve dalgalanması iki ana belirleyicisidir. Buna karşın diğer faktörler, karanfil fiyatındaki dalgalanma yoluyla ihracatı etkilediği tespit edilmiştir. Bu nedenle, karanfil ihracatındaki düşüş eğilimini düzeltmek için karanfil üretimini iyileştirmeyi ve fiyat istikrarını hedefleyen bütünleşik bir politika yaklaşımını öneriyoruz.

Keywords

Karanfil, İhracat, Vektör Hata Düzeltme Modeli, Zanzibar

References

• Abdulai, A., & Rieder, P. (1995). The impacts of agricultural price policy on cocoa supply in Ghana: An error correction estimation. Journal of African Economies, 4(3), 315-335.
• Abolagba, E. O., Onyekwere, N. C., Agbonkpolor, B. N., & Umar, H. Y. (2010). Determinants of agricultural exports. Journal of Human Ecology, 29(3), 181-184.
• Agasha, N. (2009). Determinants of export growth rate in Uganda 1987-2006. Uganda revenue authority, research and planning, Kampala, Uganda.
• Ahmed, N. (2000). Export response to trade liberalization in Bangladesh: a cointegration analysis. Applied Economics, 32(8), 1077-1084.
• Akyoo, A., & Lazaro, E. (2007). The spice industry in Tanzania: General profile, supply chain structure, and food standards compliance issues. Danish Institute for International Studies, DIIS.
• Allaro, H. B. (2011). Export performance of oilseeds and its determinants in Ethiopia. Journal of Cereals and Oilseeds, 2(1), 1-15.
• Allaro, H. B. (2012). The impact of trade liberalization on the Ethiopia's trade balance. American Journal of Economics, 2(5), 75-81.
• Amoroso, N., Chiquiar, D., & Ramos-Francia, M. (2011). Technology and endowments as determinants of comparative advantage: Evidence from Mexico. The North American Journal of Economics and Finance, 22(2), 164-196.
• Anderson, K., & Martin, W. (2005). Agricultural trade reform and the Doha Development Agenda. World Economy, 28(9), 1301-1327.
• Babatunde, M. A. (2009). Can trade liberalization stimulate export performance in Sub-Saharan Africa. Journal of International and Global Economic Studies, 2(1), 68-92.
• Bacchetta,M.(2007). Releasing export constraints: The Role of governments, ERSD,WTO, available online at https://www.africaportal.org/publications/releasing-export-constraints-the-role-of-governments/
• Bakar, S. A. (2015). Contribution of the Zanzibar State Trading Corporation (ZSTC) to clove production in Zanzibar (Doctoral dissertation, The University of Dodoma).
• Balassa, B. (1990). Incentive policies and export performance in Sub-Saharan Africa. World development, 18(3), 383-391.
• Bank of Tanzania (2005). Operations report, dar es salaam: annual report chief of the government statistician. Zanzibar statistical abstracts (from 1984 to 2004)’. Annual report. Zanzibar: BoT.
• Bashir, Z., & Din, M. U. (2003). The impacts of economic reforms and trade liberalisation on agricultural export performance in Pakistan [with Comments]. The Pakistan Development Review, 42(4), 941-960.
• Benin, S., Mogues, T., & Fan, S. (2012). Agricultural growth and poverty reduction impacts of public investments: Assessment concepts and techniques. Public Expenditures for Agricultural and Rural Development in Africa. Routledge, UK.
• Berg, B.L. (2009). Qualitative research methods for the social sciences. Long Beach: California State University.
• Bergstrand, J. H. (1990). The Heckscher-Ohlin-Samuelson model, the Linder hypothesis and the determinants of bilateral intra-industry trade. The Economic Journal, 100(403), 1216-1229.
• Bernstein, J. R., & Weinstein, D. E. (2002). Do endowments predict the location of production?: Evidence from national and international data. Journal of International Economics, 56(1), 55-76.
• Birkhaeuser, D., Evenson, R. E., & Feder, G. (1991). The economic impact of agricultural extension: A review. Economic development and cultural change, 39(3), 607-650.
• Bouët, A., Bureau, J. C., Decreux, Y., & Jean, S. (2005). Multilateral agricultural trade liberalisation: The contrasting fortunes of developing countries in the Doha round. World Economy, 28(9), 1329-1354.
• Bouet, A., Mishra, S., & Roy, D. (2008). Does Africa trade less than it should, and if so, why? The role of market access and domestic factors. Intl Food Policy Res Inst.
• Bougheas, S., Demetriades, P. O., & Morgenroth, E. L. (1999). Infrastructure, transport costs and trade. Journal of international Economics, 47(1), 169-189.
• Bureau, J. C., Jean, S., & Matthews, A. (2006). The consequences of agricultural trade liberalization for developing countries: distinguishing between genuine benefits and false hopes. World Trade Review, 5(2), 225-249.
• Chami, A. A. (2020). Contemporary dynamics in Zanzibar’s clove industry: prospects and challenges facing smallholder farmers in wete district, pemba, Zanzibar’. Modern Concepts and Developments in Agronomy, 6(1), 597-605.
• David, B. (2013). Competitiveness and determinants of cocoa exports from Ghana. International Journal of Agricultural Policy and Research, 1(9), 236-254.
• Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: journal of the Econometric Society, 1057-1072.
• Edwards, L., & Golub, S. S. (2002). South Africa’s international cost competitiveness and productivity: A sectoral analysis. Report prepared for the South African National Treasury under a USAID/Nathan Associates SEGA Project.
• Edwards, S. (1993). Openness, trade liberalization, and growth in developing countries. Journal of economic Literature, 31(3), 1358-1393.
• Elbadawi, I. A. (1998). Real exchange rate policy and non-traditional exports in developing countries. Helsinki, UNU-WIDER Working Paper No. 1998/46.
• Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: journal of the Econometric Society, 251-276.
• Engle, R. F., Hansen, M., & Lunde, A. (2011). And now, the rest of the news: Volatility and firm specific news arrival. Unpublished Working Paper, CREATES.
• Francois, J., & Manchin, M. (2013). Institutions, infrastructure, and trade. World development, 46, 165-175.
• Fugazza, M. (2004). Export performance and its determinants: supply and demand constraints. Policy Issues in International Trade and Commodities Study Series, (26).
• Gasheja, C. A. S. H. E. J. A., Joseph, M. A., Joselyne, I. N. G. A. B. I. R. E., Napoleon, N. J., & Felix, H. A. G. E. N. I. M. A. N. A. Applying vector error correction to model export in Rwanda. International Journal of Mathematics and Physical Sciences Research, 4(2), 53-63.
• Gbetnkom, D., & Khan, S. A. (2002). Determinants of agricultural exports: The case of Cameroon (AERC Research Paper).
• Granger, C. W., & Newbold, P. (1974). Spurious regressions in econometrics. Journal of econometrics, 2(2), 111-120.
• Gujarati, N. D. (2003). Basic Econometrics 4th edition McGraw Hill United states Military Academy. West Point.
• Heckscher, E. (1919). The effect of foreign trade on the distribution of income 1919. Readings in the theory of international trade, 272-300.
• Helleiner, G. K. (Ed.). (2002). Non-traditional export promotion in Africa: Experience and issues. New York: Palgrave.
• Helpman, E., & Krugman, P. (1987). Market structure and foreign trade: Increasing returns, imperfect competition, and the international economy. MIT press.
• Hervé, D. B. G., Amoro, G., Mahfoudh, R. S., & Constant, N. G. B. Z. S. (2014). The Determinants of export performance: The case study of Zanzibar export. International Journal of Economics and Finance, 6(6), 95-102.
• Hikmany, A. N. (2015, September). The Many land acquisition laws of Zanzibar: Is there an innermost objective?. In International Conference on Advanced Research in Business and Social Sciences.
• Hilal, Z. A. (2013). The Implication of prevailing marketing system in production and export: the case of clove production in Zanzibar’. Unpublished Master’s dissertation. Rotterdam, The Netherlands: International Institute of Social Studies.
• Hoekman, B., Ng, F., & Olarreaga, M. (2004). Agricultural tariffs or subsidies: which are more important for developing economies?. The World Bank Economic Review, 18(2), 175-204.
• International Trade Centre (2014). Tanzania spices sub-sector strategy. Geneva. Available at: https://www.intracen.org/uploadedFiles/Tanzania-Spices%20Roadmap%20_final.pdf (accessed 18 December 2021).
• Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2–3): 231–54.
• Jongwanich, J. (2007). Determinants of export performance in East and Southeast Asia. Asian Development Bank. Available at: https://www.adb.org/sites/default/files/publication/28367/wp106.pdf (accessed 17 September 2021).
• Juma, A. (2010). Zanzibar clove growers association: Final clove advocacy report. Zanzibar. Available at: http://www.best-dialogue.org/wp-content/uploads/ZAPCO-2010-07-Zanzibar-Clove-Advocacy-report-Juma.pdf (accessed 7 February 2022).
• Kingu, J. (2014). Cloves Export response to trade liberalization in Tanzania: A cointegration analysis. Journal Economics and Sustainable Development, 5(1): 99–120.
• Krugman, P. (1979). A model of innovation, technology transfer, and the world distribution of income. Journal of political economy, 87(2), 253-266.
• Maddala, G.S. (1992). Introduction to econometrics, 2nd Edition, Prentice Hall, New Jersey.
• Martin, P. J. (1991). The Zanzibar clove industry. Economic Botany, 45(4), 450-459.
• Masoud, M. (2017). Vulnerability of clove farmers to impact of climate change and variability in pemba Island’. Unpublished Master of Environmental Science. Zanzibar: State University of Zanzibar.
• Menji, S. (2010). Export Performance and determinants in Ethiopia. MPRA Paper 29427. Munich: University Library of Munich, Germany.
• Moh’d, I. S., Mohammed, M. O., & Saiti, B. (2017). The problems facing agricultural sector in Zanzibar and the prospects of Waqf-Muzar’ah-supply chain model: The case of clove industry. Humanomics. 33(2): 189–210.
• Moïsé, E., Delpeuch, C., Sorescu, S., Bottini, N., & Foch, A. (2013). Estimating the constraints to agricultural trade of developing countries. OECD Trade Policy Paper 142. Paris: OECD Publishing.
• Mold, A., & Prizzon, A. (2008). Explaining Africa‟ s Recent Export Performance and the Limited Gains from the Commodity Boom. Paris: OECD Development Centre.
• Mustafa, G., Latif, I., & Egwuma, H. (2016). An empirical analysis of supply response of rubber in malaysia. American Journal of Agricultural and Biological Sciences, 12(4), 148-156.
• Mwinuka, L. (2010). Assessment of post harvest repayment deductions on sugarcane out growers profitability: a case study of ruembe cane growers association: In. Agricultural Innovations for Sustainable Development Contribution from the Finalists of the 2009/10 African-wide Women and Young Professional in Science Competition, 196-201.
• Mwinuka, L., & Mlay, F. (2015). Determinants and performance of sugar export in Tanzania. Journal of Finance and Economics, 3(1): 6–14.
• Ndulu, B. J., & Lipumba, N. H. I. (1990). International trade and economic development in Tanzania. Trade and development in sub-Saharan Africa. Manchester: Manchester University Press.
• Odunga, P. S. (2020). The determinants and impact of foreign direct investment (FDI) in Kenya and Tanzania: an OECD and non-OECD perspective 1996-2016. Doctor of Philosophy thesis. Wolverhampton, UK: University of Wolverhampton.
• Ohlin, B. (1935). Interregional and international trade. Harvard University Press, Cambridge.
• Pacheco-López, P. (2005). The effect of trade liberalization on exports, imports, the balance of trade, and growth: the case of Mexico. Journal of post keynesian economics, 27(4), 595-619.
• Repoa (2018). Harnessing the Potential of Tanzanias Export. Dar es Salaam: Research on Poverty Alleviation. https://www.repoa.or.tz/wpcontent/uploads/2020/07/Harnessing_the_potential_of_Tanzanias_exports.pdf
• Ricardo, D. (1817). On the principles of political economy and taxation. variorum edition. batoche books, ontario. https://socialsciences.mcmaster.ca/econ/ugcm/3ll3/ricardo/Principles.pdf (Accessed on 29 April, 2022).
• Rivera-Batiz, L. A., & Romer, P. M. (1991). Economic integration and endogenous growth. The Quarterly Journal of Economics, 106(2), 531-555.
• Rodrigues, M. (2010). Import substitution and economic growth. Journal of Monetary Economics, 57(2), 175-188.
• Santos‐Paulino, A. (2006). Trade liberalisation and trade performance in the Dominican Republic. Journal of International Development: The Journal of the Development Studies Association, 18(7), 925-944.
• Sen, S. (2010). International trade theory and policy: A review of the literature. Working Paper No. 635. Annandale-on-Hudson, NY: Levy Economics Institute.
• Sharma, K. (2000). Export Growth in India: Has FDI played a role? Bathurst, Australia: Charles Sturt University. (No. 1858-2016-152730).
• Smith, A. (1998). An inquiry into the nature and causes of the wealth of nations: a selected edition. Oxford University Press, USA.
• Soontaranurak, K., & Dawson, P. J. (2015). Rubber acreage supply response in Thailand: A cointegration approach. The Journal of Developing Areas, 49(2), 23-38.
• Staatz, J. M., & Dembele, N. N. (2008). Agriculture for development in sub-Saharan Africa. Background paper for WDR report, No.41378, University of Michigan.
• Suda, M., D.G. Mhando, A.P. Maerere, and U. Tanaka (2020). Vanilla cultivation and processing in Uluguru mountains’. The Uluguru Vanilla Project, GEF-SUA.
• Suleiman, S. H. (2018). Exports Trade and Economic Growth in Zanzibar. Archives of Business Research, 6(11), 1-10.
• Tadasse, G., Algieri, B., Kalkuhl, M., & Braun, J. V. (2016). Drivers and triggers of international food price spikes and volatility. In Food price volatility and its implications for food security and policy (pp. 59-82). Springer, Cham.
• Thomas, V., & Nash, J. (1991). Best practices in trade policy reform. Washington, DC: The World Bank. Available at: http://bit.ly/19sFj7G (accessed 22 April 2014).
• URT (2014). Basic demographic and socio-economic profile, Tanzania Zanzibar. Office of Chief Government Statistician Ministry of State, President Office, State House and Good Governance Zanzibar. Available at: https://www.tanzania.go.tz/egov_uploads/documents/TANZANIA_ZANZIBAR_SOCIO_ECONOMIC_PROFILE_sw.pdf (accessed 3 November 2021).
• URT (2016). National five year development plan 2016/17 to 2020/21: Nurturing industrialization for economic transformation and human development. Dar es Salaam: Ministry of Finance and Planning. Available at: http://www.mof.go.tz/mofdocs/msemaji/Five%202016_17_2020_21.pdf (accessed 20 July 2019).
• Zanzibar Revolutionary Government (2003). Study on the Zanzibar clove industry. Ministry of Finance and Economic Affairs. Available at: http://www.tzonline.org/pdf/studyonthezanzibarcloveindustry.pdf (accessed 13 October 2021).
• Zanzibar Revolutionary Government (2017). Zanzibar investment report: Foreign private investments. Office of the Chief Statistician of Zanzibar. Available at: https://www.bot.go.tz/Publications/Other/Zanzibar%20Investment/en/2020070616251528.pdf (accessed 3 November 2021).
• ZSTC (2018). Zanzibar cloves magazine. Zanzibar ZSTC. 15 pp. https://www.coursehero.com/file/66760261/c42pdf/ (Accessed on 6 May 2022)