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The effect of devaluation on cattle markets integration in Burkina Faso

Author

Listed:
  • Claudio ARAUJO

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Catherine ARAUJO BONJEAN

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Jean-Louis COMBES

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

  • Pascale COMBES MOTEL

    (Centre d'Etudes et de Recherches sur le Développement International(CERDI))

Abstract

The aim of this paper is to highlight an aspect of devaluation that is generally ignored in the literature, namely, its positive impact on domestic trade. We develop a parity bounds model for cattle markets of Burkina Faso with two regimes of prices, autarkic and integrated, consistent with spatial and inter-temporal arbitrage conditions. When markets are autarkic, prices follow a random walk and when markets are integrated, prices are equal up to transaction costs. The integrated regime is more likely when transaction costs are low. In our model, the 1994 franc CFA devaluation reduces transaction costs relatively to cattle prices, thereby promoting markets integration. The model is tested using a switching regression with exogenous selection variables. The results show that the probability of market integration significantly increased after the devaluation.

Suggested Citation

  • Claudio ARAUJO & Catherine ARAUJO BONJEAN & Jean-Louis COMBES & Pascale COMBES MOTEL, 2000. "The effect of devaluation on cattle markets integration in Burkina Faso," Working Papers 200018, CERDI.
    • Handle: RePEc:cdi:wpaper:145
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    File URL: http://publi.cerdi.org/ed/2000/2000.18.pdf
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