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Increasing Returns and Market Efficiency in Agricultural Trade

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  • Marcel Fafchamps

    (Centre for the Study of African Economies)

  • Eleni Gabre-Madhin

    (International Food Policy Research Institute, Washington D.C.)

  • Bart Minten

    (Cornell University)

Abstract

Using detailed trader surveys in Benin, Madagascar and Malawi this paper investigates the presence of increasing returns in agricultural trade. After analyzing margins, costs, and value added, we find little evidence of returns to scale. Motorized transport is found more cost effective for large loads on longer distances. But transporter pool quantities from multiple traders. Margin rates show little relationship with transaction size. Personal travel costs are a source of increasing returns, but the effect is small. Consequently, total marketing costs are nearly proportional to transaction size. Working and network capital are key determinants of value added. Constant returns to scale in all accumulable factors - working capital, labour, and network capital - cannot be rejected. This implies that policies to restrict entry into agricultural trade are neither necessary nor useful. Governments should focus instead on technological and institutional innovations to upgrade agricultural markets.

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File URL: http://128.118.178.162/eps/dev/papers/0409/0409020.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0409020.

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Length: 44 pages
Date of creation: 22 Sep 2004
Date of revision:
Handle: RePEc:wpa:wuwpdc:0409020

Note: Type of Document - pdf; pages: 44
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Web page: http://128.118.178.162

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