Impacts of Export Restrictions on Food Price Volatility: Evidence from VAR-X and EGARCH-X Models

While export restrictive policy has long been associated with increasing food price volatility, it has received minimal attention in the empirical literature compared to other potential drivers of international food price fluctuations. This paper aims at closing this gap by firstly quantifying the relevant policies in an indicator of export restrictive policy. Subsequently, the effects of that are tested on estimated realized and GARCH volatility in VAR-X models where various wheat price volatilities are allowed to be endogenously determined. In a second step, the impacts of export controls during times of market turmoil are assessed in asymmetric volatility models. This strategy succinctly reveals the effects of export controls along the policy, frequency, country and time dimensions providing a detailed set of evidence. It is found that, most pronounced effects on wheat price volatility stem from long-term quotas. Similarly, longer term prohibitions of some countries have impacted wheat price fluctuation as well. On the contrary, long term tax strategies are shown to not significantly impact wheat price volatility. However, during times of market turmoil all three considered export restrictions have particularly contributed to wheat price volatility. Strengthened and more binding WTO regulation could have led to significantly less food price volatility, especially in times of food price crisis, such as recently experienced during the 2007/08 and 2010/11 episodes.