Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets

54 Pages Posted: 12 Apr 2018 Last revised: 19 May 2021

See all articles by Marshall Burke

Marshall Burke

University of California, Berkeley; Stanford University - Freeman Spogli Institute for International Studies

Lauren Bergquist

University of Chicago - Becker Friedman Institute for Economics

Edward Miguel

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: April 2018

Abstract

Large and regular seasonal price fluctuations in local grain markets appear to offer African farmers substantial inter-temporal arbitrage opportunities, but these opportunities remain largely unexploited: small-scale farmers are commonly observed to "sell low and buy high" rather than the reverse. In a field experiment in Kenya, we show that credit market imperfections limit farmers' abilities to move grain inter-temporally. Providing timely access to credit allows farmers to buy at lower prices and sell at higher prices, increasing farm revenues and generating a return on investment of 28%. To understand general equilibrium effects of these changes in behavior, we vary the density of loan offers across locations. We document significant effects of the credit intervention on seasonal price fluctuations in local grain markets, and show that these GE effects shape individual level profitability estimates. In contrast to existing experimental work, the results indicate a setting in which microcredit can improve firm profitability, and suggest that GE effects can substantially shape microcredit's effectiveness. In particular, failure to consider these GE effects could lead to underestimates of the social welfare benefits of microcredit interventions.

Suggested Citation

Burke, Marshall and Bergquist, Lauren and Miguel, Edward, Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets (April 2018). NBER Working Paper No. w24476, Available at SSRN: https://ssrn.com/abstract=3158915

Marshall Burke (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

Lauren Bergquist

University of Chicago - Becker Friedman Institute for Economics ( email )

Chicago, IL 60637
United States

Edward Miguel

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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