Agricultural commodities’ price transmission from international to local markets in developing countries

Emediegwu, Lotanna E ORCID: https://orcid.org/0000-0001-7844-0397 and Rogna, Marco ORCID: https://orcid.org/0000-0003-2995-3625 (2024) Agricultural commodities’ price transmission from international to local markets in developing countries. Food Policy, 126. 102652. ISSN 0306-9192

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Abstract

The transmission of commodities prices from international to local markets is an interesting and deeply investigated topic. A fast and strong link between the two levels of the market is seen by economists as a sign of local market efficiency, allowing actors to respond fast to signals coming from the international market. However, empirical evidence on the topic is mixed, ranging from a very weak linkage between prices in the two markets to a high-speed and almost complete transmission. The present paper aims to advance the knowledge on the topic by focusing on the price transmission of four main cereals – maize, rice, sorghum, and wheat – in 23 developing and fragile economies. Employing a recent World Bank dataset with prices for several local markets in select countries, we estimate panel vector autoregressions (PVAR) to analyze the pass-through effects of international price shocks on local food prices. We find evidence for a relatively strong price transmission elasticity for all commodities except sorghum. Furthermore, the observed transmission of shocks is almost immediate. We present the policy implications of these findings.