The Ethiopian Commodity Exchange and Spatial Price Dispersion: Disentangling Warehouse and Price Information effects

Hailemariam Ayalew () and Dagim Belay

No 2020/01, IFRO Working Paper from University of Copenhagen, Department of Food and Resource Economics

Abstract: Agricultural commodity markets in developing countries are characterized by high transaction costs and risks that reduce trade flows among spatial markets. We examine whether institutionalized agricultural commodity exchange markets reduce transaction costs and hence spatial price dispersion using the introduction of the Ethiopian Commodity Exchange (ECX) as a quasi-experiment. We use a commodity level Difference-in-Difference identification strategy to compare the spatial price dispersion of cereals that are traded at ECX (maize and wheat) with a cereal traded only at the local market (teff). Results show that ECX significantly reduces the spatial price dispersion of maize and wheat compared to teff. This effect varies depending on crop type and the time length since the ECX started trading the commodity. The longer the duration, the larger the reduction in price dispersion. We also find that dissemination of price information is the main channel through which the commodity exchange affects spatial price dispersion.

Keywords: Commodity Exchange; Difference-in-Difference; Ethiopia; Price Dispersion; Spatial market (search for similar items in EconPapers)
JEL-codes: O13 O18 Q12 Q13 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2020-01
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