Missed opportunities and missing markets spatio temporal arbitrage of rice in madagascar
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Missed opportunities and missing markets: Spatio-temporal arbitrage of rice in Madagascar. Christine Moser, Chris Barrett and Bart Minten  May 18, 2005 World Bank seminar. Motivation. Markets are crucial for -transmitting macro/sectoral policy signals to micro-level agents

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Missed opportunities and missing markets spatio temporal arbitrage of rice in madagascar

Missed opportunities and missing markets:Spatio-temporal arbitrage of rice in Madagascar

Christine Moser, Chris Barrett and Bart Minten May 18, 2005

World Bank seminar


Motivation
Motivation

Markets are crucial for

-transmitting macro/sectoral policy signals to micro-level agents

- maintaining incentives in the face of technological change

- managing locally covariate risk

Yet we know surprisingly little about:

- how markets function

- the correlates of markets which are competitive, non-competitive, or segmented

- scales at which policy interventions ought to occur

This paper addresses these gaps using data from Madagascar.


Competitive marketing equilibrium conditions with trade

Where r is rice price, p is paddy price, τ is spatial marketing margin, π is storage and interest costs, and α is milling costs.

Thus,


But competitive equilibrium doesn’t always hold…

Baulch (1997 AJAE) and Barrett and Li (2002 AJAE) develop appropriate mixture distribution-based ML methods – parity bounds model (PBM) – for estimating the probability that markets are in one or another regime.


Regime 3: Non-competitive/ disequilibrium

Regime 1: Competitive eqln

Regime 2: Segmented eqln

PBM (Parity Bounds Model)

Price Difference (absolute)

Quarter 1 Quarter 2 Quarter 3 Quarter 4


Policy implications vary by regime
Policy Implications Vary By Regime

Regime 1: laissez faire, perhaps work to reduce marketing margins

Policy interventions most appropriate under:

Regime 2: marketing margins a binding constraint on market-based transmission of policy signals, diffusion of local risk, incentives to adopt improved technologies.

Regime 3: market competition a constraint on market-based transmission of policy signals, diffusion of local risk, incentives to adopt improved technologies.


Market Integration

Methods

  • Model of trader entry. Basic model of trader entry into a market given prevailing transport costs, access to finance, and other commune characteristics.

  • Estimation of Parity Bounds Model (PBM) by MLE. This produces the probability that the market is integrated. The PBM is used to test spatial and intertemporal integration as well as integration across space, time and form.

  • Explaining non-integration. Using the PBM results, estimate a multinomial logit to examine the factors affecting whether a market is integrated (Regime 1), non-trading (Regime 2), or non-competitive (Regime 3).


Antsiranana

Mahajanga

Toamasina

Antananarivo

Antsirabe

Fianarantsoa

Boundaries:

Provincial

Fivondronona (sub-regional)

Commune

Cities

Capital

Provincial capital

Other major cities

Morondava

Toliara

Fort Dauphin

  • Data Source:

  • 2001 commune census

  • Rice & paddy prices for 4 quarters

  • Rainy & dry season transport costs for products to different destinations.

  • Also: imported rice prices, whether commune exports rice to other areas, access to public goods and services, types of economic activity, and climate variables.


Regional

Sub-regional

Three scales of spatial market integration

National


Quarter 2:

harvest

Quarter 1:

pre harvest

Rice price/kg in FMG



Results: Spatial Market Integration

Table 4: Spatial PBM Estimation Results



Intertemporal Market Integration

(between the second and third quarters)

Table 7: Intertemporal PBM estimation results



Low Season

Interseasonal flow reversals

Harvest Season


Price Difference (local – city)

Quarter 2:

harvest

Quarter 1:

pre harvest



Summary of Results and Implications

  • Markets are fairly well integrated spatially and across time, space and form at the local/sub-regional level.

  • At regional level, markets are largely non-competitive or in disequilibrium … need competition policy and foster market entry by traders (info, finance, crime, etc.)

  • At the national level, transportation costs are generally so high as to preclude spatial arbitrage … transport key.

  • Interseasonal storage is generally unprofitable due, it appears, to high unobserved storage/interest costs.

  • Crime and isolation tend to reduce spatial integration.



N=4716

c2=528.1

LL value = -3576.85

Pseudo R2=0.069




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