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Effects of Price Transmission and Exchange Rate Elasticities of Three Developing Countries on the World Cotton Trade

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  • Ozcan Ozturk

Abstract

This paper examines (i) whether the government interventions in the forms of border protection and as price support have weakened the integrations of domestic cotton markets of China, Brazil and Turkey with the world cotton market and (ii) how a weak cointegration of a domestic market with international market affects the world cotton trade. We address the first question by estimating price and exchange rates transmission elasticities using an error correction model and the second question by conducting a partial equilibrium model. Results indicate that the estimated elasticities are significantly smaller than unitary, which suggests that the cointegration is weak and the law of one price (LOP) does not hold. Furthermore, when cointegration is weak, exchange rate movements have lower impact on exports, imports and prices than they do in the case of strong cointegration.

Suggested Citation

  • Ozcan Ozturk, 2018. "Effects of Price Transmission and Exchange Rate Elasticities of Three Developing Countries on the World Cotton Trade," Applied Economics and Finance, Redfame publishing, vol. 5(1), pages 91-101, January.
    • Handle: RePEc:rfa:aefjnl:v:5:y:2018:i:1:p:91-101
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    References listed on IDEAS

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    More about this item

    Keywords

    market integration; price transmission; error correction model; equilibrium displacement model;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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