The effect of devaluation on cattle markets integration in Burkina Faso

Claudio Araujo, Catherine Araujo Bonjean (), Jean-Louis Combes and Pascale Combes Motel ()
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Pascale Combes Motel: Centre d'Etudes et de Recherches sur le Développement International(CERDI)
Authors registered in the RePEc Author Service: Pascale Motel Combes ()

No 200018, 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: Market integration; Inter-temporal arbitrage; Cattle; Franc CFA devaluation; Burkina faso; Switching regression model; Panel data. (search for similar items in EconPapers)
Pages: 16
Date: 2000
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Published in , 2001, pages

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