Determinants of the performance of Uganda’s tea exports: An error correction model for Uganda

Abstract

This study sets out to examine the determinants of the performance of Uganda’s tea exports between the years 1970-2012 employing annual time series data. More specifically, this study employed an export supply model, which is considered one of the most efficient models in explaining export performance. The empirical estimation is based on the Johansen co-integration analysis and the Error Correlation Model techniques for the period 1970 to 2012. The major findings of this study indicate that tea exports increase in relation to increase in per capita income, domestic private credit and yield per acre, while exchange rate volatility and inflation rate reduce the tea export performance. The main policy measures derived from these results indicate that there is need for the Ugandan government to direct her efforts in increasing access to domestic private credit boost per capita income and allow a free exchange rate regime. Another finding is that depreciation in the Ugandan shilling against the foreign currencies strongly stimulates Uganda’s tea export performance over the study period. Also, government stimulating the agriculture private sector by curbing inflationary tendencies in the economy and this will certainly yield the desired objective of promoting growth. There is need to set up appropriate institutions that will cut down incidences of relative world tea prices and ensure that tea farmers are not adversely affected with any fluctuations in the world tea prices.