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Increasing returns and market efficiency in agricultural trade

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  • Fafchamps, Marcel
  • Gabre-Madhin, Eleni
  • Minten, Bart

Abstract

"Using detailed trader surveys in Benin, Madagascar, and Malawi, this paper investigates the presence of increasing returns in agricultural trade. After analyzing margins, costs, and value added, we find little evidence of returns to scale. Motorized transport is found more cost effective for large loads on longer distances. But transporters pool quantities from multiple traders. Margin rates show little relationship with transaction size. Personal travel costs are a source of increasing returns, but the effect is small. Consequently, total marketing costs are nearly proportional to transaction size. Working and network capital are key determinants of value added. Constant returns to scale in all accumulable factors working capital, labor, and network capital cannot be projected. This implies that policies to restrict entry into agricultural trade are neither necessary nor useful. Governments should focus instead on technological and institutional innovations to upgrade agricultural markets." Authors' Abstract

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 78 (2005)
Issue (Month): 2 (December)
Pages: 406-442

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Handle: RePEc:eee:deveco:v:78:y:2005:i:2:p:406-442

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References

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  1. Marcel Fafchamps & Bart Minten, 2001. "Social Capital and Agricultural Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 680-685.
  2. Marcel Fafchamps, 2002. "Returns to social network capital among traders," Oxford Economic Papers, Oxford University Press, vol. 54(2), pages 173-206, April.
  3. Badiane, Ousmane & Shively, Gerald E., 1998. "Spatial integration, transport costs, and the response of local prices to policy changes in Ghana," Journal of Development Economics, Elsevier, vol. 56(2), pages 411-431, August.
  4. Barrett, Christopher B., 1997. "Food marketing liberalization and trader entry: Evidence from Madagascar," World Development, Elsevier, vol. 25(5), pages 763-777, May.
  5. Marcel Fafchamps & Bart Minten, 1999. "Relationships and traders in Madagascar," Journal of Development Studies, Taylor & Francis Journals, vol. 35(6), pages 1-35.
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  10. Seppala, P, 1997. "Food Marketing Reconsidered. An Assessment of the Liberalization of Food Marketing in Sub-Saharan Africa," Research Paper 34, World Institute for Development Economics Research.
  11. Beynon, Jonathan & Jones, Stephen & Yao, Shujie, 1992. "Market reform and private trade in Eastern and Southern Africa," Food Policy, Elsevier, vol. 17(6), pages 399-408, December.
  12. Binswanger, Hans P. & Khandker, Shahidur R. & Rosenzweig, Mark R., 1993. "How infrastructure and financial institutions affect agricultural output and investment in India," Journal of Development Economics, Elsevier, vol. 41(2), pages 337-366, August.
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  15. Rola, Agnes & Rola, Walfredo & Tiongco, Marites & Delgado, Christopher L., 2003. "Livestock intensification and smallholders," MTID discussion papers 59, International Food Policy Research Institute (IFPRI).
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  17. Donald S. Siegel & Catherine J. Morrison Paul, 1999. "Scale Economies and Industry Agglomeration Externalities: A Dynamic Cost Function Approach," American Economic Review, American Economic Association, vol. 89(1), pages 272-290, March.
  18. Minten, Bart & Kyle, Steven, 1999. "The effect of distance and road quality on food collection, marketing margins, and traders' wages: evidence from the former Zaire," Journal of Development Economics, Elsevier, vol. 60(2), pages 467-495, December.
  19. Staatz, John M. & Dione, Josue & Dembele, N. Nango, 1989. "Cereals market liberalization in Mali," World Development, Elsevier, vol. 17(5), pages 703-718, May.
  20. Berg, Elliot, 1989. "The liberalization of rice marketing in Madagascar," World Development, Elsevier, vol. 17(5), pages 719-728, May.
  21. Steven Were Omamo, 1998. "Transport Costs and Smallholder Cropping Choices: An Application to Siaya District, Kenya," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 116-123.
  22. Barrett, Christopher B., 1997. "Liberalization and food price distributions: ARCH-M evidence from Madagascar," Food Policy, Elsevier, vol. 22(2), pages 155-173, April.
  23. Bob Baulch, 1997. "Transfer Costs, Spatial Arbitrage, and Testing for Food Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 477-487.
  24. Gersovitz, Mark, 1989. "Transportation, State Marketing, and the Taxation of the Agricultural Hinterland," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1113-37, October.
  25. Fafchamps, Marcel & Gabre-Madhin, Eleni, 2001. "Agricultural markets in Benin and Malawi : the operation and performance of traders," Policy Research Working Paper Series 2734, The World Bank.
  26. Gabre-Madhin, Eleni Z., 2001. "The role of intermediaries in enhancing market efficiency in the Ethiopian grain market," Agricultural Economics, Blackwell, vol. 25(2-3), pages 311-320, September.
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