Evidence of Spatial Price Transmission in the Case of Kosovo

Kushtrim BrahaMiroslava RajčániováArtan QinetiJán PokrivčákEma Lazorčáková

DOI 10.7160/aol.2019.110101
No 1/2019, March
pp. 3-15

Braha, K., Rajčániová, M., Qineti, A., Pokrivčák, J. and Lazorčáková, E. (2019) "Evidence of Spatial Price Transmission in the Case of Kosovo", AGRIS on-line Papers in Economics and Informatics, Vol. 11, No. 1, pp. 3-15. ISSN 1804-1930. DOI 10.7160/aol.2019.110101.

Abstract

This study is focused on the analysis of spatial price transmission and market integration of Kosovo agricultural markets with world and EU markets. The paper employs asymmetric error correction model to quantify the extent, speed and nature of price adjustment for the long-run relationship between Kosovo, world and EU agricultural commodity prices. Monthly price data for key cereals (wheat, maize, barley) and beef meat covering the period 2004-2016 are used. Main findings of the study suggest that Kosovo is vulnerable to price transmitting signals from world and EU markets. Empirical results reveal evidence of asymmetry between Kosovo and world prices and signify stronger long-run relationship with the EU prices. Kosovo agricultural markets reacts to positive and negative price deviations, while world and EU prices do not respond on Kosovo price shocks. Kosovo as a price taker and as a country heavily reliant on agricultural and food imports has limited policy instruments to mitigate transmission of global price vulnerability. Under the current liberal trade regime with the regional and EU countries, any trade restrictive actions would have harming welfare effects on domestic consumers. Findings of this study contribute to agricultural and trade policymakers dealing with food prices and food security.

Keywords

Agricultural trade, price transmission, Kosovo, food prices, error correction model.

References

  1. Abbott, P. C. (2012) "Export restrictions as stabilization responses to food crisis“, American Journal of Agricultural Economics, Vol. 94, No. 2, pp. 428-434. ISSN 0002-9092. DOI 10.1093/ajae/aar092.
  2. Abdulai, A. (2000) "Spatial price transmission and asymmetry in the Ghanaian maize market”, Journal of Development Economics, Vol. 63, pp. 327-349. ISSN 0304-3878. DOI 10.1016/S0304-3878(00)00115-2.
  3. Abdulai, A. (2002) "Using threshold cointegration to estimate asymmetric price transmission in the Swiss pork market“, Applied Economics, Vol. 34, No. 6, pp. 679-687. ISSN 0003-6846. DOI 10.1080/00036840110054035.
  4. Alam, M. J. and Begum, I. A. (2012) "World and Bangladesh Rice Market Integration: An Application of Threshold Cointegration and Threshold Vector Error Correction Model (TVECM)“, Contributed Paper Prepared for Presentation at the 86th Annual Conference of the Agricultural Economics Society, University of Warwick, United Kingdom, 16-18 April 2012.
  5. An, H., Qiu, F. and Zheng, Y. (2016) "How do export controls affect price transmission and volatility spillovers in the Ukrainian wheat and flour markets?“, Food Policy, Vol. 62, pp. 142-150. ISSN 0306-9192. DOI 10.1016/j.foodpol.2016.06.002.
  6. ARCOTRASS (2006) "Kosovo Report”, ARCOTRASS Consortium, December 2006. [Online]. Available: http://ec.europa.eu/agriculture/external-studies/2006/applicant/kosovo_en.pdf [Accessed: 15 Jan. 2017].
  7. Baffes, J., Kshirsagar, V. and Mitchell, D. (2017) "What drives local food prices. Evidence from the Tanzanian maize market“, The World Bank Economic Review, Vol. lhx008. DOI 10.1093/wber/lhx008.
  8. Bakucs, Z., Bojnec, Š. and Fertő, I. (2015) "Spatial product market integration between two small, open neighbouring economies“, Agribusiness, Vol. 31, No. 2, pp. 171-187. ISSN 0742-4477. DOI 10.1002/agr.21399.
  9. Baltzer, K. (2014) "International to domestic price transmission in fourteen developing countries during the 2007–08 food crisis“, Working Paper Series UNU-WIDER Studies in Development in Economics, Oxford University Press, pp. 21-40.
  10. Baquedano, F. G. and Liefert, W. M. (2014) "Market integration and price transmission in consumer markets of developing countries“, Food Policy, Vol. 44, pp. 103-114. ISSN 0306-9192. DOI 10.1016/j.foodpol.2013.11.001.
  11. Bobokhonov, A., Pokrivcak, J. and Rajcaniova, M. (2017) "The impact of agricultural and trade policies on price transmission: The case of Tajikistan and Uzbekistan“, The Journal of International Trade & Economic Development, Vol. 26, No. 6, pp. 1-16. ISSN 0963-8199. DOI 10.1080/09638199.2017.1287212.
  12. Braha, K., Cupák, A., Pokrivčák, J., Qineti, A. and Rizov, M. (2017) "Economic analysis of the link between diet quality and health: Evidence from Kosovo“, Economics & Human Biology, Vol. 27(A), pp. 261-274. ISSN 1570-677X. DOI 10.1016/j.ehb.2017.08.003.
  13. Brown, M. E., Tondel, F., Essam, T., Thorne, J. A., Manne, B. F., Leonard, K., Stabler, B. and Eilerts, G. (2012) "Country and regional staple food price indices for improved identification of food insecurity“, Global Environmental Change, Vol. 22, pp. 784 -794. ISSN 0959-3780. DOI 10.1016/j.gloenvcha.2012.03.005.
  14. Burke, W. J. and Myers, R. J. (2014) "Spatial equilibrium and price transmission between Southern African maize markets connected by informal trade“, Food Policy, Vol. 49, pp. 59-70. ISSN 0306-9192. DOI 10.1016/j.foodpol.2014.05.008.
  15. Ceballos, F., Hernandez, M. A., Minot, N. and Robles, M. (2017) "Grain price and volatility transmission from international to domestic markets in developing countries“, World Development, Vol. 94, pp. 305-320. ISSN 0305-750X. DOI 10.1016/j.worlddev.2017.01.015.
  16. Clark, J. S., Smutka, L., Cechura, L., Procházka, P. and Maitah, M. (2015) "The law of one price and the Czech cereal market integration into the EU common agricultural market“, Ekonomicky casopis, Vol. 63, No. 8, pp. 817-836. ISSN 0013-3035.
  17. Conforti, P. (2004) "Price transmission in selected agricultural markets“, FAO, Commodity and Trade Policy Research Working Paper, No. 7. [Online]. Available: http://www.fao.org/tempref/ docrep/fao/006/ad766e/ad766e00.pdf [Accessed: 18 May 2017].
  18. Dawe, D. (2009) "Cereal price transmission in several large Asian countries during the global food crisis“, Asian Journal of Agriculture and Development, Vol. 6, No. 1, pp. 1-12. ISSN 1656-4383.
  19. Dawe, D., Morales-Opazo, C., Balie, J. and Pierre, G. (2015) "How much have domestic food prices increased in the new era of higher food prices? “, Global Food Security, Vol. 5, pp. 1-10. ISSN 2211-9124. DOI 10.1016/j.gfs.2015.01.001.
  20. Deuss, A. (2017) "Impact of agricultural export restrictions on prices in importing countries“, OECD Food, Agriculture and Fisheries Papers, No. 105. Paris: OECD Publishing.
  21. Djuric, I., Götz, L. and Glauben, T. (2011) "Effects of the governmental market interventions on the wheat market in Serbia during the food crisis 2007/2008“, In 51st Annual Conference German Association of Agricultural Economists (GEWISOLA), Halle, Germany, September 28-30.
  22. EC (DG Agriculture and Rural Development) (2017) "EU monthly prices for selected representative products“. [Online]. Available: https://ec.europa.eu/agriculture/markets-and-prices/pricemonitoring/monthly-prices_en [Accessed: 18 April 2017].
  23. EFSE (European Fund for Southeast Europe) (2014) "Agriculture finance in Kosovo: Study report“. European Fund for Southeast Europe, 2014. [Online]. Available: http://www.efse.lu/uploads/tx_news/Agricultural_Finance_in_Kosovo.pdf [Accessed: 8 January 2017].
  24. Enders, W. and Granger, C. W. J. (1998) "Unit-root tests and asymmetric adjustment with an example using the term structure of interest rates“, Journal of Business and Economic Statistics, Vol. 16, pp. 304-311. ISSN 0735-0015. DOI 10.1080/07350015.1998.10524769.
  25. Enders, W. and Siklos, P. L. (2001) "Cointegration and threshold adjustment“, Journal of Business and Economic Statistics, Vol. 19, No. 2, pp. 166-177. ISSN 0735-0015. DOI 10.1198/073500101316970395.
  26. Esposti, R. and Listorti, G. (2013) "Agricultural price transmission across space and commodities during price bubbles“, Agricultural Economics, Vol. 44, No. 1, pp. 125-139. ISSN 1574-0862. DOI 10.1111/j.1574-0862.2012.00636.x.
  27. European Commission (2008) "High Prices on Agricultural Commodity Markets: Situation and Prospects. A Review of Causes of High Prices and Outlook for World Agricultural Markets“, Review, European Commission, Directorate-General for Agriculture and Rural Development, Brussels, 2008.
  28. Ganneval, S. (2016) "Spatial price transmission on agricultural commodity markets under different volatility regimes“, Economic Modelling, Vol. 52, pp. 173-185. ISSN 0264-9993. DOI 10.1016/j.econmod.2014.11.027.
  29. Goodwin, B. K. (2006) "Spatial and vertical price transmission in meat markets“, Paper prepared for the workshop on Market Integration and Vertical and Spatial Price Transmission in Agricultural Markets, University of Kentucky, Lexington, USA, 21 April 2006.
  30. Goodwin, B. K. and Harper, D. C. (2000) "Price transmission, threshold behaviour, and Asymmetric Adjustment in the US pork sector“, Journal of Agricultural and Applied Economics, Vol. 32, No. 3, pp. 543-553. ISSN 1074-0708.
  31. Goodwin, B. K. and Holt, M. T. (1999) "Price Transmission and Asymmetric Adjustment in the U.S. Beef Sector“, American Journal of Agricultural Economics, Vol. 81, No. 3, pp. 630-637. ISSN 0002-9092. DOI 10.2307/1244026.
  32. Goodwin, B. K. and Piggott, N. (2001) "Spatial market integration in the presence of threshold effects“, American Journal of Agricultural Economics, Vol. 83, No. 2, pp. 302-317. ISSN 0002-9092. DOI 10.1111/0002-9092.00157.
  33. Goodwin, B. K., Grennes, T. J. and McCurdy, C. (1999) "Spatial price dynamics and integration in Russian food markets“, The Journal of Policy Reform, Vol. 3, No. 2, pp. 157-193. ISSN 1748-7870. DOI 10.1080/13841289908523402.
  34. Götz, L., Glauben, T. and Brümmer, B. (2013) "Wheat export restrictions and domestic market effects in Russia and Ukraine during the food crisis“, Food Policy, Vol. 38, pp. 214-226. ISSN 0306-9192. DOI 10.1016/j.foodpol.2012.12.001.
  35. Ianchovichina, E. I., Loening, J. L. and Wood, C. A. (2014) "How vulnerable are Arab countries to global food price shocks? “, The Journal of Development Studies, Vol. 50, No. 9, pp. 1302-1319. ISSN 0022-0388. DOI 10.1080/00220388.2014.928698.
  36. Ilyasov, J., Götz, L., Kamiljon, A., Dorosh, P. and Glauben, T. (2016) "Market integration and price transmission in Tajikistan's wheat markets: Rising like rockets but falling like feathers?“, IFPRI Discussion Paper 01547. [Online]. Available: http://ebrary.ifpri.org/utils/getfile/collection/p15738coll2/id/130498/filename/130709.pdf [Accessed: 10 February 2017].
  37. Irwin, S. H. and Good, D. L. (2009) "Market instability in a new era of corn, soybean, and wheat prices“, Choices, Vol. 24, No. 1, pp. 6-11.
  38. Jordanov, B., Andersson, H., Georgiev, N. and Martinovska-Stojcheska, A. (2013) "Price dispersion in neighboring countries in the Western Balkans - the case of the Macedonian tomato industry“, Journal of Central European Agriculture, Vol. 14, No. 1, pp. 363-377. ISSN 1332-9049. DOI 10.5513/JCEA01/14.1.1209.
  39. KAS (Kosovo Agency of Statistics) (2017) "Quarterly Bulletins 2014-2017: Absolute average prices in Euro for some agriculture products“, Kosovo Agency of Statistics, December 2017. [Online]. Available: http://ask.rks-gov.net/en/kosovo-agency-of-statistics/general-statistics/quarterly-bulletin [Accessed: 25 March 2017].
  40. Liao, X. C. and Sun, C. (2011) "Asymmetric price transmission in the wood products sector in the Southern United States“, In Proceedings of the 2010 Southern Forest Economics Workers Annual Meeting, pp. 14 – 31.
  41. Liefert, W. M. and Westcott, P. C. (2016) "Modifying agricultural export taxes to make them less market-distorting“, Food Policy, Vol. 62, pp. 65-77. ISSN 0306-9192. DOI 10.1016/j.foodpol.2016.04.001.
  42. Listorti, G. and Esposti, R. (2012) "Horizontal price transmission in agricultural markets: fundamental concepts and open empirical issues“, Bio-based and Applied Economics, Vol. 1, No. 1, pp. 81-108. ISSN 2280-6180. DOI 10.13128/BAE-10769.
  43. McLaren, A. (2015) "Asymmetry in price transmission in agricultural markets“, Review of Development Economics, Vol. 19, No. 2, pp. 415-433. ISSN 1467-9361. DOI 10.1111/rode.12151.
  44. Meyer, J. and von Cramon-Taubadel, S. (2004) "Asymmetric price transmission: A survey“, Journal of Agricultural Economics, Vol. 50, pp. 581-611. ISSN 1477-9552. DOI 10.1111/j.1477-9552.2004.tb00116.x.
  45. Meyer, W., Mollers, J. and Buchenrieder, G. (2012) "Who remits more? Who remits less? Evidence from Kosovar migrants in Germany and their households of origin“, Journal of Oxford Development Studies, Vol. 40, No. 4, pp. 443 – 466. ISSN 1360-0818. DOI 10.1080/13600 818.2012.729816.
  46. Minot, N. (2011) "Transmission of world food price changes to markets in Sub-Saharan Africa“, IFPRI Discussion Paper No. 01059. 44 p.
  47. MTI (Ministry of Trade and Industry of Kosovo) (2009) "Trade policy of Kosovo“, Ministry of Trade and Industry of Kosovo, December 2009. [Online]. Available: http://www.mti-ks.org/repository/docs/Trade_Policy_of_Kosovo_2009.pdf [Accessed: 22 January 2017].
  48. Myers, R. J. and Jayne, T. S. (2012) "Multiple-regime spatial price transmission with an application to maize markets in Southern Africa“, American Journal of Agricultural Economics, Vol. 94, No. 1, pp. 174-188. ISSN 0002-9092. DOI 10.1093/ajae/aar123.
  49. Ning, Z. and Sun, C. (2014) "Vertical price transmission in timber and lumber markets“, Journal of Forest Economics, Vol. 20, No. 1, pp. 17-32. ISSN 1104-6899. DOI 10.1016/j.jfe.2013.07.002.
  50. Porteous, O. (2017) "Empirical effects of short-term export bans: The case of African maize“, Food Policy, Vol. 71, pp. 17-26. ISSN 0306-9192. DOI 10.1016/j.foodpol.2017.07.003.
  51. Rajcaniova, M. and Pokrivcak, J. (2013) "Asymmetry in price transmission mechanism: the case of Slovak potato market“, Review of Agricultural and Applied Economics, Vol. 16, No. 2, pp. 16-23. ISSN 1336-9261. DOI 10.15414/raae.2013.16.02.16-23.
  52. Rapsomanikis, G., Hallam, D. and Conforti, P. (2003) "Market integration and price transmission in selected food and cash crop markets of developing countries: Review and Applications, Commodity Market Review 2003-2004”, Rome: FAO, pp. 51–75.
  53. Rapsomanikis, G., Hallam, D. and Conforti, P. (2006) "Market integration and price transmission in selected food and cash crop markets of developing countries: Review and applications“, In Sarris, A. and Hallam, D. "Agricultural Commodity Markets and Trade. New Approaches to Analyzing Market Structure and Instability", Edward Elgar Publishing and FAO, Cheltenham Glos, pp.187-217. ISBN 978-1-84542-444-2.
  54. Rezitis, A. N. and Stavropoulos, K. S. (2010) "Modeling beef supply response and price volatility under CAP reforms: the case of Greece“, Food Policy, Vol. 35, No. 2, pp. 163-174. ISSN 0306-9192. DOI 10.1016/j.foodpol.2009.10.005.
  55. Sauer, J., Davidova, S. and Latruffe, L. (2012) "Determinants of smallholders’ decisions to leave land fallow: the case of Kosovo“, Journal of Agricultural Economics, Vol. 63, No. 1, pp. 119-141. ISSN 1477-9552. DOI 10.1111/j.1477-9552.2011.00321.x.
  56. Serra, T. and Goodwin, B. K. (2003) "Price transmission and asymmetric adjustment in the Spanish dairy sector”, Applied Economics, Vol. 35, No. 18, pp. 1889-1899. ISSN 0003-6846. DOI 10.1080/00036840310001628774.
  57. Sexton, R. J., Kling, C. L. and Carman, H. F. (1991) "Market integration, efficiency of arbitrage, and imperfect competition: Methodology and application to US celery“, American Journal of Agricultural Economics, Vol. 45, pp. 369-380. ISSN 0002-9092. DOI 10.2307/1242810.
  58. Tangermann, S. (2011) "Policy solutions to agricultural market volatility: A synthesis“, International Center for Trade and Sustainable Development, Issue Paper No. 33.
  59. Vavra, P. and Goodwin, B. K. (2005) "Analysis of price transmission along the food chain“, OECD Food, Agriculture and Fisheries Working Papers, No. 3. Paris: OECD Publishing.
  60. World Bank (2017) "World Global Economic Monitor (GEM) Commodities database“, World Bank, January 2017. [Online]. Available: https://data.world/worldbank/global-economic-monitor [Accessed: 12 January 2017].
  61. World Bank/KAS (2011) "Consumption poverty in the Republic of Kosovo in 2009“, World Bank and Statistical Office of Kosovo, May 2011. [Online]. Available: http://siteresources.worldbank.org/INTKOSOVO/Resources/Kosovo_Poverty_for_web_eng.pdf [Accessed: 12 December 2016].
  62. Zorya, S., Cramon-Taubadel, S. V., Greb, F., Jamora, N., Mengel, C. and Würriehausen, N. (2014) "Price transmission from world to local grain markets in developing countries: Why it matters, how it works, and how it should be enhanced“, In Gillson, I. and Fouad, A. "Trade Policy and Food Security: Improving Access to Food in Developing Countries in the Wake of High World Prices" (Eds.), World Bank Group, pp.65 – 86. ISBN 978-1-4648-0305-5. DOI 10.1596/978-1-4648-0305-5_ch3.

Full paper

  Full paper (.pdf, 408.91 KB).