Mobile Phones and Radios: Effects on Transactions Costs and Market Participation for Households in Northern Ghana

Abstract

The literature on agricultural markets suggests that transactions costs are the main obstacles preventing households from participating in agricultural markets. We examine the impact of the recent massive penetration of information communication technologies (ICTs), particularly mobile phones and radios, in developing countries to investigate the role of information in economic transactions and participation in food crop markets. To fully capture market participation behaviours, the current theoretical framework on market participation and transactions costs is extended to include those households that sell and buy in the same time period. We correct for endogeneity and selectivity throughout our models. We used a novel dataset of 393 households in northern Ghana with detailed information on market transactions and ICTs usage. Results show that receiving market information via mobile phones has a positive and significant impact on market participation, with a greater impact for households with a surplus of food crops. We find that radios have a larger impact on the quantity traded. This may reflect the nature of mobile phones in reducing searching costs, whereas radios provide an updated and regular flow of information which affects the pattern of crops consumed and sold. We also emphasise that the most significant factor is how ICTs are used, rather than their ownership.The recent spread of mobile phones and radios in rural areas of developing countries, where previously communication was very difficult and the transportation infrastructure often poor, poses an important question: is this spread of new technologies just part of the modernisation process of rural areas or can it also be an important development tool? There is limited empirical evidence on the impact of communication technologies used as marketing tools by smallholders. This study explores the possible effects and the impact of their use -not simply the ownershipin enhancing market participation in food crop markets among smallholders in northern Ghana. Our results should inform policy-makers as mobile phones are becoming available and affordable for the 5 billion people living in emerging and developing economies. To date, 61% of the world's mobile phones are in developing countries and Africa is currently the fastest growing mobile phone market worldwide with more than 400 million subscribers and over 41% mobile phone penetration in 2009 (ITU, 2010).Analysing data for four countries in sub-Saharan Africa, Winters et al. (2010) estimate that more than half of the households are farming orientated but only a quarter are market-orientated with the remainder being largely subsistence farmers. The figures drop in the case of Ghana, where fewer than 10% of the farm households are market-orientated. Evidence from the literature suggests that transactions costs are the main obstacle preventing a household from participating in markets, with information as an important factor affecting transactions costs. In rural environments, where inadequate infrastru...

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