Trains, Trade and Transaction Costs: How Does Domestic Trade by Rail Affect Market Prices of Malawi Agricultural Commodities?

Tinbergen Institute Discussion Paper 15-055/V

55 Pages Posted: 19 May 2015 Last revised: 23 Jul 2016

See all articles by Wouter Zant

Wouter Zant

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Date Written: May 18, 2015

Abstract

We measure the impact of low cost transport by rail in Malawi on the dispersion of agricultural commodities prices across markets, by exploiting the quasi experimental design of the nearly total collapse of domestic transport by rail in January 2003, due to the destruction of a railway bridge at Rivirivi, Balaka. Estimations are based on monthly market prices of four agricultural commodities (maize, groundnuts, rice and beans), in 27 local markets, for the period 1998-2006. Market-pairs connected by rail when the railway line was operational, are intervention observations. Railway transport services explain a 14% to 17% reduction in price dispersion across markets. Geographical reach of trade varies by crop, most likely related to storability and geographical spread of production. Perishability appears to increase impact reflecting the lack of intertemporal arbitrage. Overall, impacts are remarkably similar in size across commodities.

Keywords: trade, crop prices, transaction costs, rail infrastructure, Malawi, sub Saharan Africa

JEL Classification: D23, F14, N77, Q13, O18, O55

Suggested Citation

Zant, Wouter, Trains, Trade and Transaction Costs: How Does Domestic Trade by Rail Affect Market Prices of Malawi Agricultural Commodities? (May 18, 2015). Tinbergen Institute Discussion Paper 15-055/V, Available at SSRN: https://ssrn.com/abstract=2607867 or http://dx.doi.org/10.2139/ssrn.2607867

Wouter Zant (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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