Trains, Trade and Transaction Costs: How Does Domestic Trade by Rail Affect Market Prices of Malawi Agricultural Commodities?
42 Pages Posted: 24 Jul 2017
Date Written: June 29, 2017
This paper measures 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 percent to 17 percent 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 limited scope for arbitrage. Overall, impacts are remarkably similar in size across commodities.
Keywords: Agricultural Economics, Regional Economic Development, International Trade and Trade Rules, Spatial and Local Economic Development, Economic Development, Subnational Economic Development
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