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The Determinants of Food Prices in Pakistan

Listed author(s):
  • Henna Ahsan


    (Pakistan Institute of Development Economics (PIDE), Islamabad, Pakistan.)

  • Zainab Iftikhar


    (Pakistan Institute of Development Economics (PIDE), Islamabad, Pakistan.)

  • M. Ali Kemal


    (Pakistan Institute of Development Economics (PIDE), Islamabad, Pakistan.)

Controlling prices is one of the biggest tasks that macroeconomic policymakers face. The objective of this study is to analyze the demand- and supply-side factors that affect food prices in Pakistan. We analyze their long-run relationship using an autoregressive distributed lag model for the period 1970–2010. Our results indicate that that the most significant variable affecting food prices in both the long and short run is money supply. We also find that subsidies can help reduce food prices in the long run but that their impact is very small. Increases in world food prices pressurize the domestic market in the absence of imports, which cause domestic food prices to rise. If, however, we import food crops at higher international prices, this can generate imported inflation. The error correction is statistically significant and shows that market forces play an active role in restoring the long-run equilibrium.

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Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

Volume (Year): 17 (2012)
Issue (Month): 1 (Jan-June)
Pages: 101-128

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Handle: RePEc:lje:journl:v:17:y:2012:i:1:p:101-128
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  1. Trostle, Ronald, 2008. "Factors Contributing to Recent Increases in Food Commodity Prices (PowerPoint)," Seminars 43902, USDA Economists Group.
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