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The Law of One Food Price

Author

Listed:
  • Kenneth W. Clements

    (The University of Western Australia)

  • Jiawei Si

    (The University of Western Australia)

  • Hai Long Vo

    (The University of Western Australia
    Quy Nhon University)

Abstract

Are food prices more or less equalised across countries? In view of various barriers to trade (both naturally occurring and of a man-made nature) and currency gyrations, the answer would seem to be an unambiguous “No”, but we show this question is worthy of further investigation. In order for the law of one price (LOP) to hold, domestic prices must respond one-for-one to changes in world prices and exchange rates, but this is usually prevented by variations in mark-ups and/or trade barriers. We use data on producer prices from the Food and Agriculture Organization to test for the LOP. The results give surprising support to the LOP: Market wedges appear to be insufficiently important to prevent food prices equalising over the longer term. The law of one food price seems to hold, at least as a first approximation.

Suggested Citation

  • Kenneth W. Clements & Jiawei Si & Hai Long Vo, 2023. "The Law of One Food Price," Open Economies Review, Springer, vol. 34(1), pages 195-216, February.
    • Handle: RePEc:kap:openec:v:34:y:2023:i:1:d:10.1007_s11079-022-09671-9
    DOI: 10.1007/s11079-022-09671-9
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    More about this item

    Keywords

    Law of one price; Exchange rates; Market integration; Food and agricultural prices; Panel unit root tests;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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