The Law of One Food Price

Kenneth Clements, Jiawei Si and Hai Long Vo ()
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Hai Long Vo: The University of Western Australia

Open Economies Review, 2023, vol. 34, issue 1, No 8, 195-216

Abstract: Abstract Are food prices more or less equalised across countries? In view of various barriers to trade (both naturally occurring and of a man-made nature) and currency gyrations, the answer would seem to be an unambiguous “No”, but we show this question is worthy of further investigation. In order for the law of one price (LOP) to hold, domestic prices must respond one-for-one to changes in world prices and exchange rates, but this is usually prevented by variations in mark-ups and/or trade barriers. We use data on producer prices from the Food and Agriculture Organization to test for the LOP. The results give surprising support to the LOP: Market wedges appear to be insufficiently important to prevent food prices equalising over the longer term. The law of one food price seems to hold, at least as a first approximation.

Keywords: Law of one price; Exchange rates; Market integration; Food and agricultural prices; Panel unit root tests; F30; F31; Q17 (search for similar items in EconPapers)
Date: 2023
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Working Paper: The Law of One Food Price (2020)
Working Paper: The Law of One Food Price (2019)
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DOI: 10.1007/s11079-022-09671-9

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