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

Marshall Burke, Lauren Falcao Bergquist and Edward Miguel

No 24476, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D21 D51 G21 O13 O16 Q12 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-agr, nep-exp and nep-mfd
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Citations: View citations in EconPapers (24)

Published as Marshall Burke & Lauren Falcao Bergquist & Edward Miguel, 2019. "Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets*," The Quarterly Journal of Economics, vol 134(2), pages 785-842.

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Journal Article: Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets (2019)
Working Paper: Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets* (2019)
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