Devaluation and Cattle Markets Integration in Burkina Faso

Claudio Eduardo Araujo (), Catherine Araujo Bonjean (), Jean-Louis Combes and COMBES MOTEL Pascale ()
Authors registered in the RePEc Author Service: Pascale Combes Motel ()

No 200114, Working Papers from CERDI

Abstract: The aim of this paper is to highlight an aspect of devaluation that is generally ignored in the literature, namely, its positive impact on domestic trade. We develop a parity bounds model for cattle markets of Burkina Faso with two regimes of prices, autarkic and integrated, consistent with spatial and inter-temporal arbitrage conditions. When markets are autarkic, prices follow a random walk and when markets are integrated, prices are equal up to transaction costs. The integrated regime is more likely when transaction costs are low. In our model, the 1994 franc CFA devaluation reduces transaction costs relatively to cattle prices, thereby promoting markets integration. The model is tested using a switching regression with exogenous selection variables. The results show that the probability of market integration significantly increased after the devaluation.

Keywords: panel data.; switching regression model; burkina faso; franc CFA devaluation; cattle; inter-temporal arbitrage; Market integration (search for similar items in EconPapers)
Date: 2001
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Published in Journal of African Economies, 2005, pages 359-384

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Journal Article: Devaluation and Cattle Market Integration in Burkina Faso (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:cdi:wpaper:162

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