Increasing Returns and Market Efficiency in Agricultural Trade

Marcel Fafchamps (), Eleni Gabre-Madhin and Bart Minten ()
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Eleni Gabre-Madhin: International Food Policy Research Institute, Washington D.C.

Development and Comp Systems from EconWPA

Abstract: Using detailed trader surveys in Benin, Madagascar and Malawi this paper investigates the presence of increasing returns in agricultural trade. After analyzing margins, costs, and value added, we find little evidence of returns to scale. Motorized transport is found more cost effective for large loads on longer distances. But transporter pool quantities from multiple traders. Margin rates show little relationship with transaction size. Personal travel costs are a source of increasing returns, but the effect is small. Consequently, total marketing costs are nearly proportional to transaction size. Working and network capital are key determinants of value added. Constant returns to scale in all accumulable factors - working capital, labour, and network capital - cannot be rejected. This implies that policies to restrict entry into agricultural trade are neither necessary nor useful. Governments should focus instead on technological and institutional innovations to upgrade agricultural markets.

JEL-codes: O P (search for similar items in EconPapers)
Date: Written 2004-09-22
Note: Type of Document - pdf; pages: 44
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http://129.3.20.41/eps/dev/papers/0409/0409020.pdf (application/pdf)

Related works:
Working Paper: Increasing returns and market efficiency in agricultural trade (2003)
Journal Article: Increasing returns and market efficiency in agricultural trade (2005)
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