How Strong Do Global Commodity Prices Influence Domestic Food Prices in Developing Countries? A Global Price Transmission and Vulnerability Mapping Analysis

ZEF - Discussion Papers on Development Policy No. 191

39 Pages Posted: 17 May 2014

See all articles by Matthias Kalkuhl

Matthias Kalkuhl

University of Bonn - Center for Development Research (ZEF); Potsdam-Institut für Klimafolgenforschung (PIK)

Date Written: May 2014

Abstract

This paper analyzes the transmission from global commodity to domestic food prices for a large set of countries. First, a theoretical model is developed to explain price transmission for different trade regimes. Drawing from the competitive storage model under rational expectations, it is shown that domestic prices can respond instantaneously to global prices even if no trade takes place but future trade is expected. Using a global database on food prices, we construct national and international grain price indices. With an autoregressive distributed lag model, we empirically detect countries in which food prices are influenced by global commodity prices, including futures prices. Mapping transmission elasticities with the size of the population below the poverty line which spends typically a large share of its income on food, we are able to estimate the size of vulnerable population. Our empirical analysis reveals that 90 percent of the global poor (income below 1.25$/day) live in countries where domestic food prices respond to international prices - but the extent of transmission varies substantially. For 360 million poor people, international prices transmit to their country at rates of 30 percent or higher within three months.

Keywords: time series econometrics, poverty, trade, storage, market integration, volatility, shocks, price indices

JEL Classification: C22, E3, F1, F6, Q1

Suggested Citation

Kalkuhl, Matthias, How Strong Do Global Commodity Prices Influence Domestic Food Prices in Developing Countries? A Global Price Transmission and Vulnerability Mapping Analysis (May 2014). ZEF - Discussion Papers on Development Policy No. 191. Available at SSRN: https://ssrn.com/abstract=2437443 or http://dx.doi.org/10.2139/ssrn.2437443

Matthias Kalkuhl (Contact Author)

University of Bonn - Center for Development Research (ZEF) ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

Telegraphenberg
Potsdam, Brandenburg 14412
Germany

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