Factors affecting food price inflation in Ethiopia: An autoregressive distributed lag approach

Abstract

This paper investigated factors affecting food price inflation in Ethiopia using data from 1990 to 2021 through an Autoregressive Distributed Lag Approach (ARDLA). The findings revealed that variables such as real GDP, world food price, rainfall amount, population number, money supply, exchange rate, and interest rate were co-integrated in the long run. The long run result revealed that real GDP and world food price at lag one affected food price inflation negatively and significantly whereas domestic food price, annual rainfall, interest rate and money supply affected food price inflation positively and significantly. Error Correction Term (ECT) was −68% suggesting that a quick adjustment process takes 1.42 years towards long run equilibrium path. The model was not serially correlated, the residuals are normally distributed, homoscedastic, not misspecified and stable according to the cumulative sum of recursive residuals. Fully Modified Ordinary Least Square (FMOLS) and Canonical Co-integrating Regression (CCR) alternative techniques verified the robustness of long-term coefficients of ARDL model. The study recommends that policymakers and government bodies should tighten monetary policies, balance population growth with the overall economy, and increase the use of irrigation technologies in drought-prone areas to ensure abundant food production.

Keywords

• Autoregressive distributed lag approach
• Error correction term
• Fully modified ordinary least square
• Unit root
• Food price inflation