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Transmission of World Commodity Prices to Domestic Commodity Prices in India and China

Author

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  • Katsushi Imai
  • Raghav Gaiha
  • Ganesh Thapa

Abstract

This paper examines the extent to which changes in global agricultural commodity price are transmitted to domestic prices in India and China. The focus is on short and medium-run adjustment processes using an error correction specification. In particular, we show that the extent of adjustment in the short and medium- run (from 0 to 3 years) is generally larger in China than in India. Second, the adjustment is larger for wheat, maize and rice than for fruits and vegetables in both India and China. In fact, the adjustment is the weakest for vegetables in both countries. Third, while most of the domestic commodity prices co-move with global prices, the transmission is incomplete presumably because of distortionary government interventions (e.g. subsidies for agricultural commodities) and failure to exploit spatial arbitrage. So potential benefits to farmers of higher food prices –especially in India-may be restricted, as also the supply response.

Suggested Citation

  • Katsushi Imai & Raghav Gaiha & Ganesh Thapa, 2008. "Transmission of World Commodity Prices to Domestic Commodity Prices in India and China," Global Development Institute Working Paper Series 4508, GDI, The University of Manchester.
    • Handle: RePEc:bwp:bwppap:4508
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    1. Imai, Katsushi S. & Gaiha, Raghav & Thapa, Ganesh, 2011. "Supply response to changes in agricultural commodity prices in Asian countries," Journal of Asian Economics, Elsevier, vol. 22(1), pages 61-75, February.
    2. Nelissa Jamora & Stephan von Cramon-Taubadel, 2017. "What World Price?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 39(3), pages 479-498.
    3. Kelbore, Zerihun Getachew, 2013. "Transmission of World Food Prices to Domestic Market: The Ethiopian Case," MPRA Paper 49712, University Library of Munich, Germany.
    4. Tharcisse NKUNZIMANA & François Kayitakire, 2013. "Measuring food price volatility and transmission in West Africa: How important are magnitudes of transmission across cereals and countries?," EcoMod2013 5219, EcoMod.
    5. Gunwant, Darshita Fulara & Rather, Sartaj Rasool, 2021. "Transmission of world price shocks - Evidence from GCC countries," The Journal of Economic Asymmetries, Elsevier, vol. 24(C).
    6. Huda, Fakir Azmal, 2014. "Process Of Global Shocks Transmission To Domestic Food Price Level: Case Of Bangladesh," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 2(2), pages 1-16, April.
    7. Huang, Jikun & Yang, Jun & Msangi, Siwa & Rozelle, Scott & Weersink, Alfons, 2012. "Global biofuel production and poverty in China," Applied Energy, Elsevier, vol. 98(C), pages 246-255.
    8. Bargawi, H. & Newman, S.A., 2013. "From futures markets to the farm-gate," ISS Working Papers - General Series 50215, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    9. Ferguson, Shon & Gars, Johan, 2016. "Productivity Shocks, International Trade and Import Prices: Evidence from Agriculture," Working Paper Series 1107, Research Institute of Industrial Economics.
    10. Arnade, Carlos & Cooke, Bryce & Gale, Fred, 2017. "Agricultural price transmission: China relationships with world commodity markets," Journal of Commodity Markets, Elsevier, vol. 7(C), pages 28-40.
    11. Mofya-Mukuka, Rhoda & Abdulai, Awudu, 2013. "Policy reforms and asymmetric price transmission in the Zambian and Tanzanian coffee markets," Economic Modelling, Elsevier, vol. 35(C), pages 786-795.
    12. Jim Lee & Harold Glenn A. Valera, 2016. "Price transmission and volatility spillovers in Asian rice markets: Evidence from MGARCH and panel GARCH models," The International Trade Journal, Taylor & Francis Journals, vol. 30(1), pages 14-32, January.
    13. Lee , Hyun-Hoon & Park, Cyn-Young, 2013. "International Transmission of Food Prices and Volatilities: A Panel Analysis," ADB Economics Working Paper Series 373, Asian Development Bank.
    14. Shon M Ferguson & Johan Gars, 2020. "Measuring the impact of agricultural production shocks on international trade flows," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 47(3), pages 1094-1132.
    15. Ferguson, Shon & Gars, Johan, 2015. "Productivity Shocks, International Trade and Pass-Through: Evidence from Agriculture," 2015 Conference, August 9-14, 2015, Milan, Italy 211646, International Association of Agricultural Economists.
    16. Yan, Shuqin & Ogundari, Kolawole & Cao, Zhengwei & Isoda, Hiroshi & Ito, Shoichi & Saito, Hisamitsu, 2015. "Study on the Contemporary Relationship between International and Domestic Grain Prices in Developing Countries: Focusing on Long Run and Short Run," Japanese Journal of Agricultural Economics (formerly Japanese Journal of Rural Economics), Agricultural Economics Society of Japan (AESJ), vol. 17, pages 1-6.
    17. Timmer, C. Peter, 2008. "Causes of High Food Prices," ADB Economics Working Paper Series 128, Asian Development Bank.
    18. Bekkers, Eddy & Brockmeier, Martina & Francois, Joseph & Yang, Fan, 2013. "Pass-Through, Food Prices and Food Security," Conference papers 332396, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    19. Amikuzuno, Joseph & Ogundari, Kolawole, 2012. "The Contribution of Agricultural Economics to Price transmission Analysis and Market Policy in Sub-Sahara Africa: What Does the Literature Say?," 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK 134754, Agricultural Economics Society.
    20. Flaig, Dorothee & Stone, Susan & van Tongeren, Frank, 2014. "Global Value Chains and the Cost of Protection: Insights from the New OECD Trade Model," Conference papers 332508, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    21. Mofya-Mukuka, Rhoda & Abdulai, Awudu, 2013. "Effects of Policy Reforms on Price Transmission in Coffee Markets: Evidence from Zambia and Tanzania," Food Security Collaborative Working Papers 171870, Michigan State University, Department of Agricultural, Food, and Resource Economics.

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