_COTE D’IVOIRE: Volatility, Shocks and Growth_

- Before 1977, per capita and per worker GDP were growing in Cote d’Ivoire; thereafter they fell for many years.

- GDP per worker moved above trend in 1976 and hit an all time high above trend in 1977.

- The real world price of raw cocoa hit an all-time in 1976. Coffee price moved above trend in the same year.

- The terms of trade index (as reported in SIMA, series reported by the IMF) hit an all time peak of 153 in 1977, then fell, to 66 by 1981.

- Before 1977, the terms of trade index and the bilateral real exchange rate moved ”against” each other; thereafter, they moved “with” each other.F<sup>7</sup>

- Harmonious and pronounced cyclical patterns became evident in the mid 1970s, with output and trade indices moving with cocoa time series

**Chow test provides preliminary econometric evidence of a break point in 1976-77.** We conducted a Chow test of the relationship between growth in per-worker output in Cote d’Ivoire, and capital, terms of trade, and commodity prices; essentially a one-line augmented Cobb-Douglas productivity function regression specification.  We tested the hypothesis that there was a break in the relationship in 1976.  The result: the F-test testing the null hypothesis that that the vector of regression coefficients estimated on the two sub-samples are identical is F = 2.29, versus a critical value of 1.93 at the 10% level.  We therefore reject the null, and accept the alternative hypothesis that the fundamental relations between the dependent variable and the explanatory variables changed, and are different in the two time periods.

**Since 1976-77, Cote d’Ivoire has developed considerable market power in the world cocoa market and movements in domestic output exert strong influence on world cocoa prices.** We looked at world nominal and real cocoa prices on world markets, and Cote d’Ivoire’s output and world market share, shown in ANNEX II on Figure 21.  Prices peaked in 1977 in nominal and, especially, real terms.  From 1960 to 1976, world cocoa prices grew strongly. From 1977 to 2000, cocoa prices fell. During the 1970s Cote d’Ivoire’s cocoa output grew strongly, and its share of world output more than doubled, as it moved to become the world’s leading producer. We, therefore, tested the hypotheses that Cote d’Ivoire has moved from being a price-taker to price-maker on world cocoa markets, and that the transition may have occurred during the 1970s. We were interested in the identifying the precise time period of this transition from a “small” to “major” producer of cocoa in the global scene. The implications are that Cote d’Ivoire’s economy may have become extremely dependent upon cocoa during that time period of transition; and that the 1976-77 peak and the subsequent decline in world cocoa prices must have had considerable impact on the country’s economy. In the next section we test the first two of these hypotheses.

> 7 Recall that to calculate real exchange rate measures we use the definition used by Sebastian Edwards and others, which moves in the opposite direction of the measure commonly used by the International Monetary Fund.  In our definition, the local currency appears in the numerator, so a “high” REER indicates more depreciated REER and higher export competitiveness.