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Analyzing food price trends in the context of Engel?s law and the Prebisch-Singer hypothesis

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  • Baffes,John
  • Etienne,Xiaoli Liao

Abstract

Income growth in emerging economies has often been cited as a key driver of the past decade?s com-modity price boom?the longest and broadest boom since World War II. This paper shows that income has a negative and highly significant effect on real food commodity prices, a finding that is consistent with Engel?s Law and Kindleberger?s thesis, the predecessors of the Prebisch-Singer hypothe-sis. The paper also shows that, in the long run, income influences real food prices mainly through the manufacturing price channel (the deflator), hence weakening the view that income growth exerts strong upward pressure on food prices. Other (short-term) drivers of food prices include energy costs, inventories, and monetary conditions.

Suggested Citation

  • Baffes,John & Etienne,Xiaoli Liao, 2015. "Analyzing food price trends in the context of Engel?s law and the Prebisch-Singer hypothesis," Policy Research Working Paper Series 7424, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7424
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    References listed on IDEAS

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    1. Sapsford, D, 1985. "The Statistical Debate on the Net Barter Terms of Trade between Primary Commodities and Manufactures: A Comment and Some Additional Evidence," Economic Journal, Royal Economic Society, vol. 95(379), pages 781-788, September.
    2. Balagtas, Joseph Valdes & Holt, Matthew T., 2008. "AJAE Appendix: The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives," American Journal of Agricultural Economics APPENDICES, Agricultural and Applied Economics Association, vol. 91(1), pages 1-21, April.
    3. Arezki, Rabah & Hadri, Kaddour & Loungani, Prakash & Rao, Yao, 2014. "Testing the Prebisch–Singer hypothesis since 1650: Evidence from panel techniques that allow for multiple breaks," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 208-223.
    4. Carmen M. Reinhart & Peter Wickham, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 175-213, June.
    5. Joseph V. Balagtas & Matthew T. Holt, 2009. "The Commodity Terms of Trade, Unit Roots, and Nonlinear Alternatives: A Smooth Transition Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 87-105.
    6. Erten, Bilge & Ocampo, José Antonio, 2013. "Super Cycles of Commodity Prices Since the Mid-Nineteenth Century," World Development, Elsevier, vol. 44(C), pages 14-30.
    7. Carmen M. Reinhart, 1991. "Fiscal Policy, the Real Exchange Rate, and Commodity Prices," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 506-524, September.
    8. Cuddington, John T., 1992. "Long-run trends in 26 primary commodity prices : A disaggregated look at the Prebisch-Singer hypothesis," Journal of Development Economics, Elsevier, vol. 39(2), pages 207-227, October.
    9. Arezki, Rabah & Hadri, Kaddour & Loungani, Prakash & Rao, Yao, 2014. "Testing the Prebisch–Singer hypothesis since 1650: Evidence from panel techniques that allow for multiple breaks," Journal of International Money and Finance, Elsevier, vol. 42(C), pages 208-223.
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    Citations

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    Cited by:

    1. Di Iorio, Francesca & Fachin, Stefano, 2018. "The Prebish–Singer hypothesis in the post-colonial era: Evidence from panel cointegration," Economics Letters, Elsevier, vol. 166(C), pages 86-89.
    2. John Baffes, 2014. "Global Economic Prospects : Commodity Markets Outlook, October 2014," World Bank Publications, The World Bank, number 20455.
    3. Jair N. Ojeda-Joya & Oscar Jaulin-Mendez & Juan C. Bustos-Peláez, 2019. "The Interdependence Between Commodity-Price and GDP Cycles: A Frequency-Domain Approach," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(3), pages 275-292, September.
    4. World Bank Group, 2016. "Commodity Markets Outlook, July 2016," World Bank Publications, The World Bank, number 24735.
    5. Fernandez, Viviana, 2019. "A readily computable commodity price index: 1900–2016," Finance Research Letters, Elsevier, vol. 31(C).
    6. Kurmas Akdogan, 2018. "Mean-reversion and structural change in European food prices," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 18(4), pages 163-173.
    7. Fernandez, Viviana, 2018. "Mineral commodity consumption and intensity of use re-assessed," International Review of Financial Analysis, Elsevier, vol. 59(C), pages 1-18.
    8. Andi Syah Putra & Guangji Tong & Didit Okta Pribadi, 2020. "Spatial Analysis of Socio-Economic Driving Factors of Food Expenditure Variation between Provinces in Indonesia," Sustainability, MDPI, Open Access Journal, vol. 12(4), pages 1-18, February.
    9. de Gorter, Harry & Drabik, Dusan, 2015. "Developing Countries' Policy Responses to Food Price Boom and Biofuel Policies," 2015 Conference, August 9-14, 2015, Milan, Italy 211564, International Association of Agricultural Economists.
    10. John Ssozi & Simplice A. Asongu, Phd & Voxi Amavilah, 2018. "The Effectiveness Of Development Aid For Agriculture In Sub-Saharan Africa," Working Papers 1 3005, Office Of The Chief Economist, Development Bank of Nigeria.
    11. MacDonald, Stephen & Meyer, Leslie, 2018. "Long Run Trends and Fluctuations In Cotton Prices," MPRA Paper 84484, University Library of Munich, Germany, revised 10 Feb 2018.
    12. Özçelik, Emre & Tuğan, Mustafa, 2019. "Terms of Trade Effects of Productivity Shocks and Economic Development," MPRA Paper 91473, University Library of Munich, Germany.
    13. Bernhard G. Gunter & Valeria Vargas Sejas, 2017. "Free Falling Terms of Trade Despite Industrialization: The Case of Bangladesh," Bangladesh Development Research Working Paper Series (BDRWPS) BDRWPS No. 33, Bangladesh Development Research Center (BDRC).
    14. Yves Jégourel, 2017. "Tendances et cyclicité du prix des matières premières (partie 1) : le débat sur l’hypothèse de Prebisch-Singer," Policy notes & Policy briefs 1729, Policy Center for the New South.

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    Keywords

    Commodities; Economic Theory&Research; Emerging Markets; Markets and Market Access; Climate Change Economics;

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