How Is the Liberalization of Food Markets Progressing? Market Integration and Transaction Costs in Subsistence Economies
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Oxford University Press on behalf of the World Bank
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We propose a modification of Baulch's parity bounds model to measure the market integration of food markets in developing countries. Instead of extrapolating a single observation of transaction costs, we estimate transaction costs. Predicted transaction costs compare well with survey data of traders. Probabilities of market regimes, computed on the basis of predicted transaction costs, fluctuate significantly and do not support fixed regime probabilities over time. The probability of market integration with trade decreases consistently during food shortages, increasing either the probability of no trade or loss-making trade or the probability of profitable but unexploited trade opportunities. The data further support a negative trend in market integration with trade.
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competitive equilibrium, market integration, market liberalization, market prices, marketing, merchandise, price increases, price volatility, producer prices, purchasing, sale, services markets, spread, storage capacity, surplus, trade opportunities, turnover, wholesalers, wholesaling, world market