Food prices, money growth and informal cross-border trade: evidence from Uganda

Abstract

Purpose The purpose of this paper is to examine the potential role of money supply and agricultural informal cross-border trade (ICBT) in Uganda’s food price processes. Design/methodology/approach The econometric analysis is based on two separate but complementary approaches: vector error correction modeling and Granger causality testing. Findings The results indicate that long-run domestic food prices adjust to money supply, agricultural output and exchange rate movements. However, the findings do not provide sufficient evidence to support the proposition that agricultural ICBT is an important long-run driver of food price in Uganda. The pair-wise Granger causality test results reveal a unidirectional causality from food prices to agricultural output; unidirectional causality from money supply to food prices; bidirectional causality between food prices and nominal exchange rates; unidirectional causality running from rainfall to food prices; and unidirectional causality running from agricultural ICBT to agricultural output. Social implications Understanding the underlying drivers of food inflation is critically important because food prices are critically important for food security, social stability and general household welfare. Originality/value The major innovation in this paper is attempt to model demand side determinants of food prices by focusing on the role of money and ICBT.

Informal Cross Border Trade as a Substratum Marketing System: A Review and Conceptual Framework

“…At an aggregated level, the extent of interaction between formal and informal markets is hard to determine. For instance, Mawejje and Nampewo (2018) find that ICBT in agricultural products is not a long run driver of food prices in Uganda, while Raeymaekers (2012) suggests that this dualistic aspect creates a scenario where the formal could be subsumed (under) or supplanted by the informal.…”

Returns and volatility spillover between food prices and exchange rate in Nigeria

“…For sub-Saharan African evidence, Kargbo (2005) found food prices to respond significantly to shocks in the exchange rate of West Africa nations. Mawejje and Nampewo (2018) found that Ugandan domestic food prices adjust to both exchange rate movements and the international prices of food even though the large quantities and diversity of untraded staple foods in Uganda moderate the full transmission of global prices to the domestic market. In an earlier study of 25 African countries, Kargbo (2003) finds strong support for the long-run purchasing power parity between exchange rate and food prices.…”

Informal Cross Border Trade as a Substratum Marketing System: A Review and Conceptual Framework

“…At an aggregated level, the extent of interaction between formal and informal markets is hard to determine. For instance, Mawejje and Nampewo (2018) find that ICBT in agricultural products is not a long run driver of food prices in Uganda, while Raeymaekers (2012) suggests that this dualistic aspect creates a scenario where the formal could be subsumed (under) or supplanted by the informal.…”