Abstract
Globalization has enhanced the development of the transport sector and more importantly, the distribution of agricultural produce and food globally. However, not much is known about how this has impacted the welfare of the poor in Nigeria. Therefore, the study probed the persistence and asymmetry in food and transport price volatility; creating a dummy with the period before and after the adventure of significantly improved internet facility like 3G allowed the study to observe the significant effect of this period on persistence volatility of food price returns; and exploring the welfare effects of these volatility dynamics. A bi-variate EGARCH model was deployed to estimate the heteroskedastic behavior in rural food price and transport returns (1995M1-2017M11) obtained from National Bureau of Statistics while a simple welfare framework was used to gauge the effect of the price fluctuations. Persistence volatility in food price declined after introduction of 3G innovation. The study also confirmed that the risk in transport market significantly transmitted to rural food price volatility. Volatility persistence was high (0.99% apiece) both in food and transport markets. Also, there was evidence of leverage effect in transport price volatility in Nigeria. The study revealed that due to persistent price volatility, households gave up an average/maximum of 12%/33% and 13%/44% of their food consumption and transport expenditure/returns accordingly to achieve household food stability. Using the Lucas (1987, 2003) threshold, the study concludes that the benefits of eliminating volatility in food and transport are high. Key words: Food price volatility, welfare and globalization.
Highlights
The global food crises in 2008 and 2011 have been implicated as part of the major reasons for rising cost of food globally (FAO et al, 2015; Sehkar et al, 2017) with increasing impact on the poor in the low income countries (Odusanya and Akinlo, 2016)
The values of skewness, kurtosis and Jarque-Bera statistics obtained in this study show that the selected series are not normal distributed
There are overwhelming evidences of stationarity at levels, autocorrelation and presence of Autoregressive Conditional Heteroscedasticity (ARCH) effects at lag 2 and lag 1 for both rural food price returns and transport market returns, respectively. These attributes justify the estimation of these returns series using Exponential GARCH (EGARCH) model
Summary
The global food crises in 2008 and 2011 have been implicated as part of the major reasons for rising cost of food globally (FAO et al, 2015; Sehkar et al, 2017) with increasing impact on the poor in the low income countries (Odusanya and Akinlo, 2016). By implication, where uncertainty (conditional volatility) is high, market efficiency will be low and such effect on the welfare could be high enough for government intervention in terms of price stabilization policy strategy. The significance of transport market and internet facility to information flow in modern market has endeared us to interrogate the culpability of these exogenous factors in food price volatility in Nigeria.
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