Causality and Comparative Advantage: Vietnam’s Role in the Post-ICA International Coffee Market

Authors

Lindsey G. Stockman, University of Minnesota - Twin CitiesFollow

Abstract

Although Vietnam comprised a miniscule portion of the international coffee market during the 1900s, its coffee production skyrocketed after the collapse of the ICA and surpassed Colombian production levels. This unmatched increase attributed the drastic decline in world coffee prices to the oversupply of coffee from Vietnam. Following the methods of Dodaro (1993), a Granger causality analysis between Vietnamese coffee exports and ICO composite price produced neither forward nor reverse causality between these two variables. Using the methodology of Carlin, Glyn, and Van Reenen (2001), labor productivity comparisons aimed to explain the shift of coffee export volume from Colombia to Vietnam. Results demonstrated Colombia’s consistently higher labor productivity, thus the disparity in realized comparative advantage does not explain the shift in production. Although Vietnam’s success in coffee production accompanied the Colombian coffee sector’s demise, a direct link between the two economies does not appear to exist. Vietnam’s success likely arose simply from the culmination of relevant government policies, trade agreements, and the collapse of the ICA.

Recommended Citation

Stockman, Lindsey G. (2010) "Causality and Comparative Advantage: Vietnam’s Role in the Post-ICA International Coffee Market," Undergraduate Economic Review: Vol. 6: Iss. 1, Article 6.
Available at: https://digitalcommons.iwu.edu/uer/vol6/iss1/6