This paper empirically investigates the effect of cotton production and transmission channels of the international cotton price shocks on government revenues in Burkina Faso, a cotton-exporting country. Using the Structural Vector Autoregression (SVAR) model on data from 1985 to 2022, we find that positive shock in the world cotton price is associated with increased government revenues and economic growth. Byinvestigating transmission channels, we have highlighted the exchange rate, prices paid to producers and export revenues as the most relevant channels for transmitting world cotton price shocks to government revenues. Our findings suggest that to increase its revenues, the Burkinabè government should support cotton production through price-based production incentive policies and encourage the private sector to invest in industrial processing and exports. In addition, it could establish a stabilisation fund and a specific tax system for the cotton industry based on export revenues in collaboration with the cotton companies.

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Keywords

International cotton price, Cotton production, Public revenue, SVAR, Burkina Faso