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Country and border effects in the transmission of maize prices in Eastern Africa: evidence from a semi-parametric regression model

  • Ihle, Rico
  • von Cramon-Taubadel, Stephan
  • Zorya, Sergiy

This study uses a rich dataset of 85 market pairs between January 2000 and October 2008 for Kenya, Tanzanian and Uganda, the three largest member countries of the East Africa Community, to analyze the factors determining national and cross-national maize price transmission. Although the three countries are members of the community’s customs union and they each claim to pursue maize trade without borders, their agricultural trade policies still differ, thus affecting prices and trade flows to different extents. This analysis extends the existing border effects literature in three ways. First, it assesses the magnitude of price transmission, instead of analyzing trade flows or price variability. Second, distance is shown to have a significant impact on price transmission in the region and to be of nonlinear nature, which is modelled using a semiparametric partially linear model. Third, the border effect is found to be heterogeneous, that is, it matters which national border is crossed. A strongly negative effect of the Tanzanian-Kenyan border appears, while no significant effect for the crossing of the Ugandan-Kenyan border exists. These results are of high political relevance because they show that Tanzania represents a rather isolated and internally fragmented island within the East African maize markets. Bilateral maize trade with Nairobi appears to display substantially higher price transmission than with the rest of the markets, confirming its economic importance in the East African region and the structural maize deficit in Kenya.

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File URL: http://purl.umn.edu/96184
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Paper provided by African Association of Agricultural Economists (AAAE) & Agricultural Economics Association of South Africa (AEASA) in its series 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa with number 96184.

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Date of creation: Sep 2010
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Handle: RePEc:ags:aaae10:96184
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  1. Matthias Helble, 2007. "Border Effect Estimates for France and Germany Combining International Trade and Intranational Transport Flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 143(3), pages 433-463, October.
  2. T. S. Jayne & Robert J. Myers & James Nyoro, 2008. "The effects of NCPB marketing policies on maize market prices in Kenya," Agricultural Economics, International Association of Agricultural Economists, vol. 38(3), pages 313-325, 05.
  3. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  4. Supee Teravaninthorn & Gaël Raballand, 2009. "Transport Prices and Costs in Africa : A Review of the International Corridors," World Bank Publications, The World Bank, number 6610, March.
  5. Carolyn L. Evans, 2003. "The Economic Significance of National Border Effects," American Economic Review, American Economic Association, vol. 93(4), pages 1291-1312, September.
  6. Feenstra, Robert C, 2002. "Border Effects and the Gravity Equation: Consistent Methods for Estimation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 491-506, December.
  7. Mahbub Morshed, A. K. M., 2003. "What can we learn from a large border effect in developing countries?," Journal of Development Economics, Elsevier, vol. 72(1), pages 353-369, October.
  8. Alessandro Olper & Valentina Raimondi, 2008. "Explaining National Border Effects in the QUAD Food Trade," Journal of Agricultural Economics, Wiley Blackwell, vol. 59(3), pages 436-462, 09.
  9. Alessandro Olper & Valentina Raimondi, 2007. "Patterns and Determinants of International Trade Costs in the Food Industry," LICOS Discussion Papers 18807, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  10. Olper, Alessandro & Raimondi, Valentina, 2008. "Agricultural market integration in the OECD: A gravity-border effect approach," Food Policy, Elsevier, vol. 33(2), pages 165-175, April.
  11. McCallum, John, 1995. "National Borders Matter: Canada-U.S. Regional Trade Patterns," American Economic Review, American Economic Association, vol. 85(3), pages 615-23, June.
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