Afghanistan’s Food Security: Evidence from Pakistan and Afghanistan Wheat Price Transmission using Threshold Vector Error Correction Model (TVECM))

Abstract

Afghanistan's food security mainly depends on Pakistan's wheat prospect, circumstances, agriculture policies, and market price dynamics. This study explores the price transmission mechanism of the wheat flour and wheat grain between Pakistan and Afghanistan using monthly price pairs from January 2003 through October 2017. The paper investigates the existing knowledge of how Pakistan’s agricultural policy and wheat market affects the wheat market and food security of Afghanistan. The results confirm that the wheat flour price of Pakistan is found to be driving the price of wheat flour of Afghanistan. This implies that wheat flour price of Pakistan evolves independently, and that wheat flour price of Afghanistan balances any divergence in the long-run relationship between the two markets prices. The policy implication is to eradicate transaction costs as well as procuring timely wheat grain and flour, in order to maintain price stability between Pakistan and Afghanistan wheat markets.