Study on the Relationship between International and Domestic Grain Prices in Developing Countries&mdash;An Application of Markov-Switching Autoregressive Model&mdash;

Shuqin Yan,Kolawole Ogundari,Hiroshi Isoda,Satoshi Ito

doi:10.3844/ajebasp.2016.44.52

Abstract

This study aims at estimating the influence of international grain prices on the domestic grain prices in 24 developing countries using a nonlinear model, Markov-Switching Autoregressive model. The results indicate that international grain prices have a positive influence on domestic grain prices before and during/after the grain price-hikes, while the degree of influence may vary depending upon grains and countries. Overall, the influences of the international grain prices on domestic grain prices during/after the price-hikes are less than before in those countries where rice or maize are staple food such as for rice in Benin, Cameroon, Niger and Tunisia and for maize in Chad, Guatemala and Nicaragua; however, the influences are generally larger than before the price-hikes for those countries where wheat is staple food such as Armenia, Georgia, Mauritania and Pakistan. For the effects of domestic prices in previous periods, they had a positive influence on current domestic grain prices in most of the countries in this study.

Highlights

From 2007 to mid-2008, the international grain prices showed a series of sharp fluctuation trend
The domestic prices may respond differently from the international prices in R1 and R2 and this study examines whether or not the domestic grain prices depend on international grain prices which are divided into two regimes
It may be possible to assume that the domestic grain prices depend on the change in international grain prices, which are separated into two different regimes

Summary

Introduction

From 2007 to mid-2008, the international grain prices showed a series of sharp fluctuation trend. Understanding the price transmission between the domestic and international grain prices in developing countries help policy makers understand consumer welfare behavior given the fact that international grain prices have sharply increased and decreased in 2008 (Fig. 1) and the argument that there is a surge in domestic grain prices during and after the grain-price crisis in developing countries. In view of this development, we assumed that the domestic prices may respond differently from the international prices before and during/after the grain price-hikes and it might have occurred that the domestic grain prices may have two different periods. Several autoregressive models in this study are used to describe the time evolution of the wind speed and the switching between these different models is controlled by a hidden Markov chain which represents the weather types

Objectives

Methods

Results

Discussion

Conclusion