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

25 Pages Posted: 10 Sep 2008

See all articles by Katsushi S. Imai

Katsushi S. Imai

University of Manchester - School of Social Sciences

Raghav Gaiha

University of Delhi - Department of Economics; Australian National University (ANU)

Ganesh Bahadur Thapa

affiliation not provided to SSRN

Date Written: June 2008

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.

Keywords: agricultural commodities, prices, cointegration, error-correction model, adjustment

JEL Classification: C22, O13, Q11

Suggested Citation

Imai, Katsushi S. and Gaiha, Raghav and Thapa, Ganesh Bahadur, Transmission of World Commodity Prices to Domestic Commodity Prices in India and China (June 2008). Brooks World Poverty Institute Working Paper No. 45. Available at SSRN: https://ssrn.com/abstract=1265633 or http://dx.doi.org/10.2139/ssrn.1265633

Katsushi S. Imai (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Raghav Gaiha

University of Delhi - Department of Economics ( email )

Delhi-110007
India

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Ganesh Bahadur Thapa

affiliation not provided to SSRN ( email )

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