Measuring spatial transmission of white maize prices between South Africa and Mozambique: An asymmetric error correction model approach

Over the last decade, Mozambique has experienced drastic increases in food prices, with serious implications for households’ real income. A deeper understanding of how food prices are spatially transmitted from global to domestic markets is thus fundamental for designing policy measures to reduce poverty and food insecurity. This study assesses the spatial transmission of white maize prices between South Africa and Mozambique using an asymmetric error correction model to estimate the speed and symmetry with which prices are being transmitted from the international to the domestic market. The study found that although the transmission of white maize prices from South Africa and Mozambique is cointegrated in the long run, it is not co-integrated in the short run, and that the transmission of these prices is asymmetric depending on whether the international price increases or decreases. The study suggests that some of the barriers that currently constrain a more efficient price transmission are related to the presence of a highly prohibitive import tariff and the structure of a value added tax.