Abstract
The paper estimates the determinants of price differentials across 79 districts in Uganda. In the framework of the law of one price, we examine the hypothesis that the spatial price differentials are at least partly influenced by transportation and other transaction costs, infrastructural constraints, productivity and commodity output shocks and the purchasing power of households. The study notes the wide range of price differences across the country, which to a large extent can be attributed to the interaction between remoteness and the quality of physical infrastructure. The effect of income <em>per capita</em> on price differentials is relatively uniform across commodities. The findings point towards the importance of strengthening the capacities of farmers and their productivity as a means to improve their livelihoods and foster more efficient markets with faster supply responses to changes in prices. The findings further emphasize the significance of spatial dimension and infrastructure conditions in Uganda, suggesting that infrastructural development must be a core area to reduce price differences in the country.
Highlights
It is generally believed that competitive and functioning markets deliver improved welfare to consumers since competition tends to enhance quality and lower prices
In the framework of the law of one price, we examine the hypothesis that the spatial price differentials are at least partly influenced by transportation and other transaction costs, infrastructural constraints, productivity and commodity output shocks and the purchasing power of households
The study notes the wide range of price differences across the country, which to a large extent can be attributed to the interaction between remoteness and the quality of physical infrastructure
Summary
It is generally believed that competitive and functioning markets deliver improved welfare to consumers since competition tends to enhance quality and lower prices. In addition functional and well integrated markets enable the flow of commodities from surplus production areas to deficit ones, improving people’s access to food commodities. It is the improvements in the quality of products and services that translate into micro or household level welfare progresses while lower prices in turn enable households to stretch their incomes further over consumption and time. In the absence of well-functioning markets and presence of binding constraints to domestic trade, we often witness wide ranging degrees of accessibility to commodities and services, and differentials in their prices in diverse parts of the same country. There is empirical evidence of commodity price variability across space and seasons in many developing countries, with significant unexploited arbitrage opportunities underscoring the low level of market integration (Abdulai 2007 and Fackler and Goodwin, 2001)
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