Cointegration and spatial price transmission among rice markets in Tanzania: implications for price stabilisation policies

Abstract

ABSTRACT In an effort to increase agricultural production, promote regional specialization and stabilize domestic food prices, the Tanzanian government has implemented several market-enhancing policies. The success of these measures depends, among other factors, on the cointegration and degree of price transmission across spatial markets. This study uses the vector autoregressive procedure of the Toda-Yamamoto causality test, dynamic ordinary least squares cointegration tests, and the asymmetric error correction model to examine the performance of Tanzania's domestic wholesale rice markets (lead-lag price relationship and long-run price adjustment process) during the post-agricultural market liberalization period. In response to changes in the marketing-enhancing policies during the investigation period, the presence of multiple structural breaks in the long-run equation is allowed. The results show that the Dar es Salaam market influences prices in all the rice markets examined, thus acting as a price leader. Furthermore, the price adjustment process results demonstrated the absence of asymmetric price adjustment between the central and regional wholesale rice markets, suggesting improved integration and efficiency of inter-regional rice markets. On the other hand, a central market's presence implies that interventions aimed at the central market can buffer regional markets to withstand adverse price shocks caused by food price spikes and volatility.