Abstract
Empirical findings explaining the wage-price nexus in Bangladesh are diverse and conflicting. A proper understanding of the relationship between food prices and farm wages is essential for planning policies in support of the wellbeing and food security of the rural poor. In exploring the link between food prices and rising agricultural wages, this study analyzes the dynamic relations between those two by using monthly data from 1994 to 2014. A standard vector error correction model (VECM) is implemented to determine the short-run and long-run relationships between wages and food prices in eight divisions in Bangladesh. In addition, we use autoregressive distributed lag (ARDL) models to estimate the pass-through coefficients and to compare the short-run effects of rice price and urban wage shocks on agricultural wages. We find statistical evidence for a structural break between January 2007 and January 2009 in the relationships of the variables in all divisions. Different to the period until 2007/2009, after the structural break, in six out of eight divisions, rice price shocks do not transmit to the farm wages in the short-run. Moreover, our findings show that in the long-run food prices have become less influential in explaining the changes in farm wages while the influence of urban wages has become stronger in some divisions.
Highlights
It is one of the primary objectives of low-income countries to achieve economic development
Examining the trends in farm and urban wages as well as rice prices, which are shown in Fig. 3 for all divisions farm wage is indicated by the blue line, caused us to strongly suspect nonstationarity in at least one of our variables of interest
Before testing for the existence of a unit root in the time series and determining the order of integration, it is essential to determine any structural breaks in the relationship among the variables
Summary
It is one of the primary objectives of low-income countries to achieve economic development. Rising food prices in recent years have created serious concern about rising poverty and food insecurity in the developing world (Barahona & Chulaphan, 2017). Against this background, there is the view that farm households in developing countries, who are consumers and food producers, could benefit from higher prices, yet the magnitude of such benefits is controversial (Ivanic & Martin, 2014). In Bangladesh, the agricultural sector provides both food and employment for the population. Among the different food grains, rice alone is consumed by more than 90% of the population, and it covers 75% of the total cropped land (BBS, 2016b). Rice farming is the largest activity in the agricultural sector, Hassan M.F., Kornher L
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