Determination of cocoa producer price in Ghana: an empirical investigation

Various studies done in relation to domestic price has focused on the price transmission mechanism and the effect of Structural Adjustment Program and other policies. This paper investigates the determinants of domestic price of cocoa in Ghana using the vector error correction model. There was an improvement in the error correction term when the dummy variable was introduced and it also had a significant influence on the domestic price of cocoa. This implies whenever there was a great reduction in bottlenecks, economic agents and variables responded faster in order to restore long-term equilibrium. Other factors mainly the world price and consumer price index also saw an increase in their coefficients with the inclusion of dummy. In essence the world price exerted a positive influence on the domestic price but the error of structural significance was greater than 5%. This study was also to examine the role of domestic price of on big picture of the export supply of cocoa in Ghana. The result was statistically significant though the impact was low. The hypothesis test conducted suggests that export supply of cocoa is dependent on the previous year’s domestic price implying that government will need to provide more financial incentives to cocoa farmers to enable them stimulate production and hence exports.
A Thesis submitted to the Department of Economics in partial fulfilment of the requirements for the award of the Degree in Masters of Arts Honours In Economics, 2009