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The transmission of world commodity prices to domestic markets under policy reforms in developing countries

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Author Info
John Baffes
Bruce Gardner

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Abstract

This paper examines the degree to which world price signals have been transmitted into domestic prices for eight countries and ten commodities, a total of 31 country/commodity pairs. The main characteristic of these countries was that they all undertook substantial policy reforms during the mid-1980s to early 1990s. The paper investigates the effect of reforms on the speed at which signals were transmitted to domestic markets and on the extent of price transmission. We find that Chile, Mexico, and Argentina are the only countries whose domestic commodity markets were integrated with world markets. For the remaining cases (Ghana, Madagascar, Indonesia, Egypt, and Colombia) in only a few country/commodity pairs is there some passthrough of world price changes. In terms of the effects of policy reforms, in the majority of the cases the hypothesis of a structural break following the reform year is rejected.

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Publisher Info
Article provided by Taylor and Francis Journals in its journal The Journal of Policy Reform.

Volume (Year): 6 (2003)
Issue (Month): 3 (September)
Pages: 159-180
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Handle: RePEc:taf:jpolrf:v:6:y:2003:i:3:p:159-180

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Related research
Keywords: Developing Countries; Policy Reforms; Price Transmission; Structural Break;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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  2. Baffes, John & Gautam, Madhur, 1996. "Price Responsiveness, Efficiency, and the Impact of Structural Adjustment on Egyptian Crop Producers," World Development, Elsevier, vol. 24(4), pages 765-771, April. [Downloadable!] (restricted)
  3. Baffes, John & Meerman, Jacob, 1998. "From Prices to Incomes: Agricultural Subsidization without Protection?," World Bank Research Observer, Oxford University Press, vol. 13(2), pages 191-211, August. [Downloadable!]
    Other versions:
  4. Morisset, Jacques, 1998. "Unfair Trade? The Increasing Gap between World and Domestic Prices in Commodity Markets during the Past 25 Years," World Bank Economic Review, Oxford University Press, vol. 12(3), pages 503-26, September.
  5. Richardson, J. David, 1978. "Some empirical evidence on commodity arbitrage and the law of one price," Journal of International Economics, Elsevier, vol. 8(2), pages 341-351, May. [Downloadable!] (restricted)
  6. Phillips, Peter C B & Loretan, Mico, 1991. "Estimating Long-run Economic Equilibria," Review of Economic Studies, Blackwell Publishing, vol. 58(3), pages 407-36, May. [Downloadable!] (restricted)
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  7. Jorge Quiróz & Raimundo Soto, . "International Price Signals in Agricultural Markets: DoGovernments Care?," ILADES-Georgetown University Working Papers inv088, Ilades-Georgetown University, School of Economics and Bussines. [Downloadable!]
  8. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May. [Downloadable!] (restricted)
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  10. P. B. R. Hazell & M. Jaramillo & A. Williamson, 1990. "The Relationship Between World Price Instability And The Prices Farmers Receive In Developing Countries," Journal of Agricultural Economics, Blackwell Publishing, vol. 41(2), pages 227-241. [Downloadable!] (restricted)
  11. Stigler, George J & Sherwin, Robert A, 1985. "The Extent of the Market," Journal of Law & Economics, University of Chicago Press, vol. 28(3), pages 555-85, October.
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  12. Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-48, December. [Downloadable!] (restricted)
  13. McNew, Kevin & Fackler, Paul L., 1997. "Testing Market Equilibrium: Is Cointegration Informative?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 22(02), December. [Downloadable!]
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  15. John Baffes, 1998. "Structural reforms and price liberalization in Mexican agriculture," Journal of International Development, John Wiley & Sons, Ltd., vol. 10(5), pages 575-587.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. James Cassing & Saad Nassar & Gamal Siam & Hoda Moussa, 2007. "Distortions to Agricultural Incentives in Egypt," Working Papers 313, University of Pittsburgh, Department of Economics, revised Jul 2008. [Downloadable!]
    Other versions:
  2. Maret, Fenohasina, 2007. "Distortions to Agricultural Incentives in Madagascar," Agricultural Distortions Working Paper 48551, World Bank. [Downloadable!]
  3. Headey, Derek & Fan, Shenggen, 2008. "Anatomy of a crisis: The causes and consequences of surging food prices," IFPRI discussion papers 831, International Food Policy Research Institute (IFPRI). [Downloadable!]
    Other versions:
  4. Anderson, Kym & Kurzweil, Marianne & Martin, Will & Sandri, Damiano & Valenzuela, Ernesto, 2008. "Methodology for Measuring Distortions to Agricultural Incentives," Agricultural Distortions Working Paper 48326, World Bank. [Downloadable!]
  5. F. T. M. Kilima, 2006. "Are Price Changes in the World Market Transmitted to Markets in Less Developed Countries? A Case Study of Sugar, Cotton, Wheat, and Rice in Tanzania," The Institute for International Integration Studies Discussion Paper Series iiisdp160, IIIS. [Downloadable!]
  6. Krivonos, Ekaterina & Olarreaga, Marcelo, 2005. "Sugar Prices, Labour Income and Poverty in Brazil," CEPR Discussion Papers 5383, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Goetz, Linde & von Cramon-Taubadel, Stephan, 2008. "Considering threshold effects in the long-run equilibrium in a vector error correction model: An application to the German apple market," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44247, European Association of Agricultural Economists. [Downloadable!]
  8. Worako, T.K. & van Schalkwyk, H.D. & Alemu, Z.G. & Ayele, G., 2008. "Producer price and price transmission in a deregulated Ethiopian coffee market," Agrekon, Agricultural Economics Association of South Africa (AEASA), vol. 47(4), December. [Downloadable!]
  9. Guterman, Lia, 2007. "Distortions to Agricultural Incentives in Colombia," Agricultural Distortions Working Paper 48392, World Bank. [Downloadable!]
  10. Tine Olsen & Brett Inder, 2008. "Coffee Commodity Chain," Monash Economics Working Papers 06/08, Monash University, Department of Economics. [Downloadable!]
  11. Baffes, John, 2007. "Distortions to Cotton Sector Incentives in West and Central Africa," Agricultural Distortions Working Paper 48526, World Bank. [Downloadable!]
  12. BAQUEDANO, Felix G. & SANDERS, John H., 2008. "Increasing Cotton Farmers Incomes in Mali West Africa: Eliminate Subsidies in Developed Countries or Productivity Increase in Mali?," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6426, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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