Asymmetric threshold vertical price transmission in wheat and flour markets in Dhaka (Bangladesh): seemingly unrelated regression analysis

Mohammad J Alam and Raghbendra Jha

ASARC Working Papers from The Australian National University, Australia South Asia Research Centre

Abstract: The analysis of price transmission for commodities requiring processing in vertical markets is challenged by fuzzy policy environments in the case of developing countries. However the analyses of threshold and asymmetries in price transmission at different levels of vertical markets provide a good indicator of market efficiency. The paper employs threshold cointegration that takes into account the asymmetric adjustment towards a long-run equilibrium and short-run price transmission. The paper investigates the non-linear price adjustment in short- and long-run in vertical markets of wheat and flour in Bangladesh. Using monthly wholesale and retail prices of wheat and flour for data from FAOStat for the period January 2008 to February 2016 we develop an asymmetry threshold error correction model for three vertical chains namely (i) wholesale and retail markets of flour, (ii) wholesale markets of wheat and flour, (iii) wholesale markets of wheat and retail markets of flour. We find evidence of threshold effects in vertical wheat-flour markets. The speed of adjustment towards the long-run equilibrium is different when the price deviations exceed the threshold value from when price deviations are below the threshold. Additionally, we find evidence of short-run price asymmetries implying that downstream price responds faster when upstream price increases than when the latter falls. This validates the hypothesis of `rocket and feature` principle in the wheat-to-flour markets in Bangladesh. Proximate reasons for these differences are discussed.

Keywords: price transmission; vertical markets; wheat and flour; cointegration; asymmetry threshold error correction model (search for similar items in EconPapers)
JEL-codes: C22 C51 Q13 Q18 (search for similar items in EconPapers)
Pages: 46
Date: 2016
New Economics Papers: this item is included in nep-agr and nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://acde.crawford.anu.edu.au/sites/default/fil ... wp2016-03alamjha.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pas:asarcc:2016-03

Access Statistics for this paper

More papers in ASARC Working Papers from The Australian National University, Australia South Asia Research Centre Contact information at EDIRC.
Bibliographic data for series maintained by Raghbendra Jha ( this e-mail address is bad, please contact ).