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The Ethiopian Commodity Exchange and Spatial Price Dispersion: Disentangling Warehouse and Price Information effects

Author

Listed:
  • Hailemariam Ayalew

    (Trinity College Dublin)

  • Dagim G. Belay

    (Department of Food and Resource Economics, University of Copenhagen)

Abstract

Agricultural commodity markets in developing countries are characterized by high transaction costs and risks that reduce trade flows among spatial markets. We examine whether institutionalized agricultural commodity exchange markets reduce transaction costs and hence spatial price dispersion using the introduction of the Ethiopian Commodity Exchange (ECX) as a quasi-experiment. We use a commodity level Difference-in-Difference identification strategy to compare the spatial price dispersion of cereals that are traded at ECX (maize and wheat) with a cereal traded only at the local market (teff). Results show that ECX significantly reduces the spatial price dispersion of maize and wheat compared to teff. This effect varies depending on crop type and the time length since the ECX started trading the commodity. The longer the duration, the larger the reduction in price dispersion. We also find that dissemination of price information is the main channel through which the commodity exchange affects spatial price dispersion.

Suggested Citation

  • Hailemariam Ayalew & Dagim G. Belay, 2020. "The Ethiopian Commodity Exchange and Spatial Price Dispersion: Disentangling Warehouse and Price Information effects," IFRO Working Paper 2020/01, University of Copenhagen, Department of Food and Resource Economics.
    • Handle: RePEc:foi:wpaper:2020_01
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Commodity Exchange; Difference-in-Difference; Ethiopia; Price Dispersion; Spatial market;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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