The effect of China's domestic public storage on world market prices: the case of cotton

Wenshou Yan and Kaixing Huang ()

China Agricultural Economic Review, 2021, vol. 13, issue 4, 756-780

Abstract: Purpose - During world price spike periods, the government is more likely to apply trade distortions to stabilize domestic prices, but the trade distortions would amplify fluctuations of international market prices. Which type of policy may stabilize the domestic market price, but not disturb the international market? This paper answers the question by taking public storage policy as a case study in the context of trade policy. Specially, this paper tries to identify the effect of domestic public storage on the world market price. Design/methodology/approach - This article extends a standard theoretical model of trade policy through incorporating domestic public storage policy and makes the model more applicable in the context of China. The extended model is then applied to analysis how domestic public storage policy affects the international market price in the context of trade policy. Finally, a properly identified structural vector auto-regression technique is applied to test the effect of domestic public storage on the world market price by using cotton data from China. Findings - The theoretical model indicates that China's public storage policy could stabilize the international market price. In order to test the working mechanisms, China's soaring public storage between 2010 and 2014 is employed to identify the effects of China's cotton storage on the volatility of the world price. The empirical findings show that China was able to stabilize the international price of cotton to a non-trivial extent through alteration of its public stockpile. Originality/value - The first contribution is that this paper extends a standard theoretical model of trade policy to incorporate domestic public storage policy, which enables us to explore the effects of domestic public storage policy on the world price in the context of China. The second major contribution is that this paper provides evidence that, as a large player in the world market, China's public storage policy could stabilize the international agricultural price to a substantial degree.

Keywords: Public storage policy; Trade distortion; World cotton price; VAR simulation (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:caerpp:caer-12-2020-0300

DOI: 10.1108/CAER-12-2020-0300

Access Statistics for this article

China Agricultural Economic Review is currently edited by Dr Fu Qin, Dr Jikun Huang, Dr Kevin Z Chen, Dr Weiming Tian, Prof Daniel Sumner, Prof Xian Xin and Prof Holly Wang

More articles in China Agricultural Economic Review from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().