Supply Response of Maize in Ethiopia: Cointegeration and Vector Error Correction Approach

Abstract

This study aimed at estimating the supply response of maize and suggest measures for improving production using secondary data from FAOSTAT pertaining from the year 1966-2010. Augmented Dick Fuller was used for unit root test while both maximum eigen value and trace statistics used for cointegeration test. Vector error correction (VECM) approach was used to estimate long run and short run relationships between maize supply and its estimators. The result of the study indicated that one of the series are non stationary at level but not for the first difference while, some of the series were stationary and the Johanson's method indicated the cointegration of the series. Price factors were more important in the long run than in the short run and maize supply was price inelastic in the long run and technology in elastic in the low lands of the country could be due to predominance of small and marginal land holdings, weak R&D and extension. Non-price factors were comparatively more important for higher supply growth of maize so that policy interventions should focus on improving rural infrastructure specially in the lowlands. More investment on R&D would bring about shift on the maize supply by assuring technological breakthrough on maize yield that many countries have achieved and made the sub-sector attractive.