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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. 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

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  1. 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

  2. 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.

  3. 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,

  4. 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.

  5. 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

  6. 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.

  7. 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).

  8. 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.

  9. Regional Sub-regional Three scales of spatial market integration National

  10. Quarter 2: harvest Quarter 1: pre harvest Rice price/kg in FMG

  11. Dry season cost of transporting 50kg to major city The Commune Census

  12. Results: Spatial Market Integration Table 4: Spatial PBM Estimation Results

  13. Explaining Spatial Market Integration

  14. Intertemporal Market Integration (between the second and third quarters) Table 7: Intertemporal PBM estimation results

  15. Explaining Intertemporal Market Integration

  16. Low Season Interseasonal flow reversals Harvest Season

  17. Price Difference (local – city) Quarter 2: harvest Quarter 1: pre harvest

  18. Market integration across space, time and form

  19. 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.

  20. Thank you for your comments and interest

  21. N=4716 c2=528.1 LL value = -3576.85 Pseudo R2=0.069

  22. Table 9 Difference between sub-region price and commune price

  23. Communes for which walking or traveling by ox cart is necessary

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