Price shocks without borders: Cross-sectional dependence and transmission of international agricultural prices to domestic markets

This study investigates the extent to which international agricultural price shocks are transmitted to domestic agricultural markets in both developed and developing economies. Using panel data from 13 major agricultural trading countries from 1990 to 2022, we applied cross-sectional dependence tests, fixed-effects panel regressions, and panel Granger causality analyses to examine the degree of interdependence and directionality in price movements. Our results reveal significant cross-sectional dependence, suggesting that global price shocks reverberate across the national markets. The panel regression estimates indicate a statistically significant and positive effect of international prices on domestic prices, with a stronger transmission observed in developed economies. Panel Granger causality tests confirm that global price indices significantly predict domestic price changes in most countries, although reverse causality is limited to large exporters, such as the United States, China, and Brazil. Robustness checks across sub-periods (1990-2005 vs. 2006-2022) and country groupings validate the stability and heterogeneity of the price transmission mechanisms. These findings underscore the increasingly integrated nature of food markets and the evolving dynamics of price volatility. The policy implications highlight the importance of multilateral coordination in food trade, differentiated policy tools tailored to country development levels, and the need for strategic buffering mechanisms to manage the growing global volatility in agricultural prices.