Transaction Cost Thresholds in International Rice Markets

Abstract

Recent episodes of high and volatile prices for grains such as rice have raised concerns about their implications for hunger and poverty. We model price relationships between international rice prices and 221 domestic prices in 47 developing countries that import rice. We use a threshold vector error correction model that accounts for transaction costs of trade in spatial price transmission, and an improved regularised Bayesian threshold estimator for threshold models. Our results show that threshold values are higher after 2008 than before, which suggests that transaction costs in international rice trade have increased in recent years. Threshold values are highest for Latin American countries followed by African and Asian countries, and higher for retail than for wholesale prices. Since 2008, price transmission is slower in countries that responded to high and volatile prices with domestic market-based interventions such as price controls and faster in countries that responded by lowering tariffs and by implementing production support measures.

Determination of the international maize price: What is the growing role of Brazil and Ukraine?

“…In the recent past, there have been a large number of studies that use threshold cointegration to analyze price relations among commodity markets (Abdulai, ; Abidoye & Labuschagne, ; Al‐Abri & Goodwin, ; Balcombe, Bailey, & Brooks, ; Ghoshray, ; Goodwin & Piggott, ; Gouveia & Rodrigues, ; Jamora & Von Cramon Taubadel, ; Meyer, ). Threshold models were introduced by Balke and Fomby (), who argued that a price change in one market may be too small to overcome another market's transaction costs and generate a price response from that market.…”

Food security and the functioning of wheat markets in Eurasia: a comparative price transmission analysis for the countries of Central Asia and the South Caucasus

“…As an example, in a strongly integrated market, a regional grain harvest shortfall triggers price increases, which are quickly transmitted to other markets, thereby inducing concomitant trade flows that eventually act to stem rising prices (Goodwin and Piggott 2001). By contrast, a region that is only weakly integrated in regional and world wheat markets might be restricted from accessing export markets, and then only at high costs (Jamora and von Cramon-Taubadel 2016). In this case, rising regional prices will induce only limited trade inflows, thereby negatively affecting the availability and access to a sufficient, reasonably priced grain supply.…”

“…By using the non-linear, threshold-type price transmission model approach (Greb et al 2013), we explicitly accounted for trade costs that strongly influence market integration (Fiamohe et al 2013;Jamora and von Cramon-Taubadel 2016;Moser et al 2009;Svanidze and Götz 2019;van Campenhout 2007). Poor transportation infrastructure and high shipping costs, as well as excessive bureaucratic requirements, are problematic throughout Central Asia (ADB 2006;Pomfret 2016;World Bank 2011).…”

Asymmetry in Transaction Costs and Price Transmission: The Case of Cowpea Market in Burkina Faso

“…We adapt the strategy employed by Jamora and von Cramon-Taubadel (2016). First, we evaluate null hypothesis of linear cointegration against threshold for threshold cointegration using the test proposed by Hansen and Seo (2002).…”