Lagged real tobacco price (lnPT
t-1
) The price refers to the annual average price of tobacco output expressed in United States dollar terms per each kilogram sold. The producer price of tobacco, lagged by one period has been introduced as a proxy for expected prices and this is justified by the assumption that tobacco producers take past price experiences into account when making production plans. According to
Askari and Cummings (1977), the choice of a deflator is of great importance hence nominal tobacco price was deflated using the ratio of nominal tobacco price to nominal maize price. A positive relationship is expected between lagged real tobacco prices and current supply of tobacco output as also found by Leaver (2004).
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