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The Influence of the Strength of Financial Institutions and the Investment-Production Delay on Commodity Price Cycles: A Framed Field Experiment with Coffee Farmers in Colombia

Author

Listed:
  • Santiago Arango-Aramburo

    (Universidad Nacional de Colombia)

  • Yuliana Acevedo

    (Universidad Nacional de Colombia)

  • Joep Sonnemans

    (University of Amsterdam
    The Tinbergen Institute)

Abstract

Commodity price cycles can arise when there is a tendency to invest more (less) when current prices are high (low). Traditionally this behavior is interpreted as based upon naïve expectations. However, weak financial institutions can also cause this behavior. When borrowing is hard and saving is risky farmers cannot invest in periods with low prices because their income is too low, while in periods with high prices they have few alternatives than to invest the surplus in their farm. In this paper, we present a framed field experiment to analyze how Colombian small-scale coffee farmers make investment decisions. We vary the strength of the financial institutions and the lag between investment and production. Overall there is a positive relation between prices and investment, and this relation becomes stronger when the financial institutions become weaker.

Suggested Citation

  • Santiago Arango-Aramburo & Yuliana Acevedo & Joep Sonnemans, 2019. "The Influence of the Strength of Financial Institutions and the Investment-Production Delay on Commodity Price Cycles: A Framed Field Experiment with Coffee Farmers in Colombia," De Economist, Springer, vol. 167(4), pages 347-358, December.
    • Handle: RePEc:kap:decono:v:167:y:2019:i:4:d:10.1007_s10645-019-09343-z
    DOI: 10.1007/s10645-019-09343-z
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    References listed on IDEAS

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    1. Mehta, A. & Chavas, Jean-Paul, 2008. "Responding to the Coffee Crisis: What We Can Learn from Price Dynamics," Working Papers 201444, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
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    8. Arango, Santiago & Moxnes, Erling, 2012. "Commodity cycles, a function of market complexity? Extending the cobweb experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 321-334.
    9. Akiyama, Takamasa & Baffes, John & Larson, Donald F. & Varangis, Panos, 2003. "Commodity market reform in Africa: some recent experience," Economic Systems, Elsevier, vol. 27(1), pages 83-115, March.
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    Cited by:

    1. Faris Alshubiri, 2021. "The stock market capitalisation and financial growth nexus: an empirical study of western European countries," Future Business Journal, Springer, vol. 7(1), pages 1-20, December.

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    More about this item

    Keywords

    Cobweb; Coffee planting; Framed field experiment; Financial institutions; Price cycles;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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