How Is the Liberalization of Food Markets Progressing? Market Integration and Transaction Costs in Subsistence Economies

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    Abstract

    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. © The Author 2012. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank. All rights reserved.
    Original languageEnglish
    Pages (from-to)28-54
    JournalWorld Bank Economic Review
    Volume27
    Issue number1
    DOIs
    Publication statusPublished - 2013

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