Faculty of social studies department of economics supply response of tobacco output to price changes in

UNIVERSITY OF ZIMBABWE
FACULTY OF SOCIAL STUDIES
DEPARTMENT OF ECONOMICS
SUPPLY RESPONSE OF TOBACCO OUTPUT TO PRICE CHANGES IN
ZIMBABWE (1980 to 2015)
BY
TAKUDZWA MANDISODZA
THIS DISSERTATION IS SUBMITTED IN PARTIAL FULFILMENT OF THE
REQUIREMENT OF THE BACHELOR OF SCIENCE HONOURS DEGREE IN
ECONOMICS.
MAY 2016

Abstract
The main objective of the study was to estimate the responsiveness of tobacco supply to change in prices in Zimbabwe. Historical time series data from 1980 to 2015 and the OLS approach were used in order to achieve the stated objective. The study followed the adapted ARDL
Nerlove (1958) logarithmic supply response model also used by Leaver (2004). All variables except for short-run technological improvements and sales quotas were found to be statistically significant. Supply of tobacco in Zimbabwe was found to be positively influenced by expected tobacco prices, population of active tobacco growers and by technological advances in the long- run and inversely affected by previous tobacco quantities and expected maize prices. The short- run and long-run price elasticities of tobacco supply of 0.12 and 0.16 were estimated, indicating that tobacco output is unresponsive to changes in output prices. Therefore, the hypothesis that tobacco output respond to price changes in Zimbabwe maybe rejected. Given the findings, the study recommended for price supporting instruments such as input, credit and mechanization policies for effective growth in the production and supply of tobacco in Zimbabwe.

i

Table of Contents
Abstract i
Table of Contents ii
List of tables iv
List of figures iv
List of Acronyms v
CHAPTER ONE
1
INTRODUCTION AND BACKGROUND 1.0 Introduction 1.2 Problem Statement 1.4 Research Objectives 1.5 Research Hypothesis 1.6 Significance of the Study 1.7 Organisation of the Rest of the Study
5

CHAPTER TWO
6
LITERATURE REVIEW 2.0 Introduction 2.1 Theoretical Literature 2.1.1 Basic Theory of Supply and Supply Response 2.1.2 The Nerlove (1958) Theory of Supply Response 2.1.3 The Cobweb Theorem 2.2 Empirical Literature 2.3 Conclusion
10
ii

CHAPTER THREE
11
METHODOLOGY
11 3.0 Introduction 3.1 The Model Specification 3.1.1 The Theoretical Model 3.1.2 The Empirical Model 3.2. Definition and Justification of Variables 3.3 Estimation procedure 3.4 Unit root tests 3.5 Model Diagnostic Tests 3.6 Data sources, Type and Period 3.7 Conclusion
16
CHAPTER FOUR
17
ESTIMATION, PRESENTATION AND INTERPRETATION OF RESULTS 4.0 Introduction
17

4.1 Summary of Descriptive Statistics 4.2 Unit Root Test Results 4.5 Conclusion
22
CHAPTER FIVE
23
SUMMARY, CONCLUSION AND POLICY RECOMMENDATIONS 5.0 Introduction 5.1 Summary and Conclusion 5.2 Policy recommendations 5.3 Areas for further studies
24
iii

REFERENCES
25
APPENDICES
27