Abstract
The purpose of this study is to unveil the relationship between commodity prices of Banaadir region, Lower Shabelle, the World food prices, and world agricultural prices between the period of 2000M01 to 2016M12. The study will elucidate if the composite commodity prices of Banaadir region has an association with the world commodity prices (food and agriculture) and Lower Shabelle as well. Johansen cointegration test along with VECM and Pairwise Granger Causality are applied. For the cointegration, trace statistics indicate one cointegrating equation, therefore, there a long run association for about in 4 month equilibrium. VECM supported the existence of long run relationship with a speed of adjustment of 19%. For Granger Causality, the results show, no causality between Lower Shabelle CCPI and Banaadir region CCPI, unidirectional causality between world food index and Banaadir CCPI, unidirectional causality for world agricultural commodity price index and Banadir CCPI, unidirectional causality for world food price index and Lower Shabelle CCPI, unidirectional causality for world agric index and Lower Shabelle CCPI and finally no causality between world food index and agricultural index.
Highlights
International markets have experienced declines in commodity prices in 2015 and 2016
The composite commodity price index for both regions is based on our calculation from a selected group of eleven commodity prices
We have calculated the weighted average for these commodities to obtain a single composite commodity price index (CCPI)
Summary
International markets have experienced declines in commodity prices in 2015 and 2016. Thanks to global weak demand, low investment, and turbulences in financial markets (UN, 2016). Prices in Somalia have varied considerably by commodity and region. Maize and sorghum prices have vastly elevated in the last quarter of 2016 across the country. Thanks to below average Deyr harvest (Figure 1). While, imported rice and wheat flour remained stable in 2016 nationwide (Figure 2). While, imported rice and wheat flour remained stable in 2016 nationwide (Figure 2). (FEWSNET, 2017)
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