Food and Agricultural Prices Across Countries and the Law of One Price

59 Pages Posted: 16 May 2017

See all articles by Kenneth W. Clements

Kenneth W. Clements

The University of Western Australia - Faculty of Economics & Commerce

Jiawei Si

The University of Western Australia - UWA Business School

Long Vo

Planning and Transport Research Centre; Economics Department, UWA Business School

Date Written: May 15, 2017

Abstract

This paper investigates several basic characteristics of food and agricultural prices across commodities, countries and time. The first part of the paper uses consumer prices across commodities and countries from the International Comparisons Program and finds that food has a distinct tendency to be cheaper in rich countries as compared to poor ones. This possibly reflects the productivity bias effect of Balassa and Samuelson, or Engel’s law. Food prices are also less dispersed in rich countries. Cross-country and cross-commodity tests reject the law of one price (LOP) more often than not with, as might be expected with consumer prices. In the second part of the paper, data on agricultural producer prices from the Food and Agriculture Organisation are used to test if deviations from the LOP are stationary, using a panel approach. As about three-quarters of the 100 products obey the law, there seems to be some support for the LOP in this context.

Keywords: Purchasing power parity, Panel unit root test, Engel's law, International agriculture price

JEL Classification: E20, F31, Q10

Suggested Citation

Clements, Kenneth W. and Si, Jiawei and Vo, Long Hai, Food and Agricultural Prices Across Countries and the Law of One Price (May 15, 2017). Available at SSRN: https://ssrn.com/abstract=2968742 or http://dx.doi.org/10.2139/ssrn.2968742

Kenneth W. Clements (Contact Author)

The University of Western Australia - Faculty of Economics & Commerce ( email )

Department of Economics
Nedlands 6907
Australia

Jiawei Si

The University of Western Australia - UWA Business School ( email )

Crawley, Western Australia 6009
Australia

Long Hai Vo

Planning and Transport Research Centre ( email )

35 Stirling Highway
Crawley
Perth, Western Australia 6009
Australia

HOME PAGE: http://sites.google.com/view/longhaivo/

Economics Department, UWA Business School ( email )

35 Stirling Highway
Crawley
Perth, WA 6009
Australia

HOME PAGE: http://https://research-repository.uwa.edu.au/en/persons/long-vo

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