Devaluation and Cattle Markets Integration in Burkina Faso
AbstractThe aim of this paper is to highlight an aspect of devaluation that is generally ignored in the literature, namely, its positive impact on domestic trade. We develop a parity bounds model for cattle markets of Burkina Faso with two regimes of prices, autarkic and integrated, consistent with spatial and inter-temporal arbitrage conditions. When markets are autarkic, prices follow a random walk and when markets are integrated, prices are equal up to transaction costs. The integrated regime is more likely when transaction costs are low. In our model, the 1994 franc CFA devaluation reduces transaction costs relatively to cattle prices, thereby promoting markets integration. The model is tested using a switching regression with exogenous selection variables. The results show that the probability of market integration significantly increased after the devaluation.
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Bibliographic InfoPaper provided by CERDI in its series Working Papers with number 200114.
Date of creation: 2001
Date of revision:
Publication status: Published in Journal of African Economies, 2005, pages 359-384
panel data.; switching regression model; burkina faso; franc CFA devaluation; cattle; inter-temporal arbitrage; Market integration;
Other versions of this item:
- Claudio Araujo & Catherine Araujo Bonjean & Jean-Louis Combes & Pascale Combes Motel, 2005. "Devaluation and Cattle Market Integration in Burkina Faso," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 14(3), pages 359-384, September.
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