A key premise of several arguments in economics is that markets allow for price signals to be transmitted both spatially and vertically. An obvious example is the assessment of the relative merits of alternative trade and/or policy environments: potential losses for a country or a group of economic agents and benefits crucially depend, inter alia, upon markets receiving price signals, which, in turn, depends upon a number of markets’ features, including their very existence. The extent to which a price shock at one point affects a price at another point can broadly indicate whether efficient arbitrage exists in the space that includes the two points. At two extremes, one may assume that a full transmission of price shocks can indicate the presence of a frictionless and well functioning market, while at the other extreme a total absence of transmission may make the very existence of a market questionable. Therefore, the degree of price transmission can provide at least a broad assessment of the extent to which markets are functioning in a predictable way, and price signals are passing-through consistently between different markets. For this very reason, the topic has attracted a considerable amount of theoretical and empirical work.
The aim of this paper is to provide evidence on price transmission in a number of agricultural markets for a wide set of countries. The idea is to employ available information both per se, and in support of other analytical efforts, particularly in the field of agricultural trade policy analysis. This work is based on a price database collected from various sources in sixteen countries - Argentina, Brazil, Chile, Costa Rica, Egypt, Ethiopia, Ghana, India, Indonesia, Mexico, Pakistan, Senegal, Thailand, Turkey, Uganda, and Uruguay - mostly from local statistics. Based on the content of the database, focus is primarily on basic food commodities, although some important cash crops are also included. Both spatial and vertical price relation are considered, since the database includes prices at the producer, wholesale and retail levels, although not regularly. Available data was also supplemented with comparable information drawn from FAOSTAT.
The analysis consists of a set of econometric applications. Annual price information was analyzed by testing mostly for the existence of a long run equilibrium between the price series; whereas monthly information, which is available for seven of the countries included, was analyzed by paying more attention to the dynamics of the relation between prices, to their causality, and to the symmetry of transmission.
The study is organized as follows. The next section reviews some of the most important contributions in the literature, in order to locate the evidence proposed within the existing work. Section 3 proposes some insights into the possible use of the results of this work for policy analysis, while section 4 describes the major characteristics of the database. Section 5 describes the methods employed to analyze the data, while the results are reported in section 6. This is divided into two parts, dealing with the results of the analysis of annual and monthly information respectively. Finally, some concluding remarks are in section 7.
