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Transmission of World Commodity Prices to Domestic Commodity Prices in India and China

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  • Katsushi Imai
  • Raghav Gaiha
  • Ganesh Thapa

Abstract

This paper examines the extent to which changes in global agricultural commodity price are transmitted to domestic prices in India and China. The focus is on short and medium-run adjustment processes using an error correction specification. In particular, we show that the extent of adjustment in the short and medium- run (from 0 to 3 years) is generally larger in China than in India. Second, the adjustment is larger for wheat, maize and rice than for fruits and vegetables in both India and China. In fact, the adjustment is the weakest for vegetables in both countries. Third, while most of the domestic commodity prices co-move with global prices, the transmission is incomplete presumably because of distortionary government interventions (e.g. subsidies for agricultural commodities) and failure to exploit spatial arbitrage. So potential benefits to farmers of higher food prices –especially in India-may be restricted, as also the supply response.

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File URL: http://www.bwpi.manchester.ac.uk/medialibrary/publications/working_papers/bwpi-wp-4508.pdf
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Bibliographic Info

Paper provided by BWPI, The University of Manchester in its series Brooks World Poverty Institute Working Paper Series with number 4508.

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Date of creation: 2008
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Handle: RePEc:bwp:bwppap:4508

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Cited by:
  1. Mofya-Mukuka, Rhoda & Abdulai, Awudu, 2013. "Policy reforms and asymmetric price transmission in the Zambian and Tanzanian coffee markets," Economic Modelling, Elsevier, vol. 35(C), pages 786-795.
  2. Amikuzuno, Joseph & Ogundari, Kolawole, 2012. "The Contribution of Agricultural Economics to Price transmission Analysis and Market Policy in Sub-Sahara Africa: What Does the Literature Say?," 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK 134754, Agricultural Economics Society.

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