Macroeconomic and Production Determinants of Coffee Export Volume from Central Java, Indonesia: Evidence from Bilateral Panel Data

Abstract

Coffee is one of Indonesia’s leading plantation commodities, contributing significantly to foreign exchange earnings and rural livelihoods. Despite being an important coffee-producing province, Central Java has experienced considerable fluctuations in coffee export volume, indicating that export performance is influenced by both macroeconomic and production-related factors. This study
aimed to identify the determinants of coffee export volume from Central Java to six major destination countries—the United States, Japan, Malaysia, Italy, India, and Egypt—during 2004-2023. A balanced bilateral panel dataset comprising 120 observations was analysed using panel data regression. The Fixed Effect Model (FEM) was selected based on the Chow, Hausman, and Lagrange Multiplier tests. The explanatory variables included Free on Board (FOB), International Coffee Price (ICP), Real Exchange Rate (RER), Gross Domestic Product per capita (GDPC) of importing countries, and coffee yield. The results show that FOB and RER have positive and statistically significant effects on coffee export volume, whereas ICP, GDPC, and coffee yield are not statistically significant. These findings indicate that export value and exchange rate competitiveness play a more important role in driving regional coffee exports than production capacity or external market conditions. The study provides empirical evidence to support policies that enhance
value addition, maintain exchange rate competitiveness, and strengthen the long-term competitiveness of coffee exports from Central Java.