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A Model of Inter-Regional Trade in Grains with Storage

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  • Prabhat Vaze

Abstract

When there is spatial arbitrage between food markets, the price differential between the markets should equal the cost of transfer. This simple arbitrage rule has formed the basis of many empirical tests of the performance of developing countries' food markets. Here, a more complex structure to regional food markets is hypothesised. By including commodity storage into a model of inter-regional trade, it is shown that, in an optimal dynamic program, trade is intermittent. The possibility of periods without trade casts doubt on the validity of using tests for correlation in market prices as indicators of market performance.

Suggested Citation

  • Prabhat Vaze, "undated". "A Model of Inter-Regional Trade in Grains with Storage," Edinburgh School of Economics Discussion Paper Series 10, Edinburgh School of Economics, University of Edinburgh.
    • Handle: RePEc:edn:esedps:10
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    File URL: http://www.econ.ed.ac.uk/papers/id10_esedps.pdf
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    References listed on IDEAS

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    7. Bob Baulch, 1997. "Transfer Costs, Spatial Arbitrage, and Testing for Food Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 477-487.
    8. Lester G. Telser, 1958. "Futures Trading and the Storage of Cotton and Wheat," Journal of Political Economy, University of Chicago Press, vol. 66, pages 233-233.
    9. Bob Baulch, 1997. "Testing for food market integration revisited," Journal of Development Studies, Taylor & Francis Journals, vol. 33(4), pages 512-534.
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    Cited by:

    1. Sudhakar Kota & Nizar Sahawneh, 2011. "Trends In Commodity Flows In Uae," Journal of Global Business and Economics, Global Research Agency, vol. 3(1), pages 87-100, July.

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    More about this item

    Keywords

    food markets; optimal control; storage; spatial equilibrium;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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