Asymmetric Price Transmission

Monthly wholesale prices of imported rice were used to estimate the spatial dynamics of eight local markets and the impact of infrastructure on spatial market integration. The results, based on threshold and linear error correction models, indicate that Liberian rice markets are spatially integrated, with four main price-transmission markets, Red-Light, Gbarnga, Saclepea and Buchanan. Red-Light is the main entry market for imported rice. Its estimated period of outgoing price transmission is about five months, with bad road conditions the likely impediment to more complete market integration. In 12 of the 17 long-run, related market pairs, negative and positive price changes are transmitted symmetrically. Asymmetry in five market pairs is potentially a result of localised market power. Overall, integration responds positively to improved roads and negatively to spatial separation and quality of communication. Markets could be better integrated by improving transportation and market infrastructure.

This study compares the magnitude of price transmission and speed of adjustment towards equilibrium between global and domestic prices of high and low quality rice under asymmetric equilibrium adjustment. The dynamics of price transmission are examined using asymmetric vector error correction models. A structural break is considered in testing for unit roots and cointegration. Interestingly, the findings indicate that the magnitude of price transmission and speed of adjustment may be different between high and low quality rice prices. The speed of adjustment may be faster for high quality rice prices whereas the magnitude of price transmission appears to be greater for those of low quality rice. Moreover, domestic prices of high and low quality rice exposed asymmetric adjustment to divergence from the long-run equilibrium with adjustment being faster and significant to positive than negative deviation from the equilibrium. It is also observed that the Granger causality possibly runs from global to domestic rice prices. The results implies that considering rice as a differentiated commodity in the price transmission analysis may improve our understanding of the relationship between global and domestic rice markets and enhance the effectiveness of policy proposals for developing the rice markets and reducing the vulnerability of the poor households to shocks in the rice markets. We appreciate the constructive comments by the anonymous referee and the suggestions made by the participants of the International Forum for Global Food and Agricultural Economics that was convened from January 22 to 23 of 2016 in Miyazaki, Japan. We are also thankful to the Vulnerability Analysis and Mapping (VAM) project of the World Food Program (WFP) in Afghanistan for providing the necessary market price data. We assume the responsibility of any error remaining in our paper. Citation: Najibullah Hassanzoy and Shoichi Ito and Hiroshi Isoda and Yuichiro Amekawa, (2016) ''A comparison of asymmetric price transmission from global to domestic markets between high and low quality grains: a case of