Empirical Detection and Quantification of Price Transmission in Endogenously Unstable Markets: The Case of the Global–Domestic Coffee Supply Chain in Papua New Guinea
Price transmission through global–domestic agricultural supply chains is a fundamental indicator of domestic market efficiency and producer welfare. Conventional price-transmission econometrics test for a theory-based spatial-arbitrage restriction that long-run equilibrium prices in spatially distin...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2021-08-01
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| Series: | Sustainability |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2071-1050/13/16/9172 |
| Summary: | Price transmission through global–domestic agricultural supply chains is a fundamental indicator of domestic market efficiency and producer welfare. Conventional price-transmission econometrics test for a theory-based spatial-arbitrage restriction that long-run equilibrium prices in spatially distinct markets differ by no more than transaction costs. The conventional approach is ill-equipped to test for price transmission when endogenously unstable markets do not equilibrate due to systematic arbitrage-frustrating frictions including financial and institutional transaction costs and biophysical constraints. We propose a novel empirical framework using price data to test for market stability and price transmission along international-domestic supply chains incorporating nonlinear time series analysis and recently emerging causal-detection methods from empirical nonlinear dynamics. We apply the framework to map-out and quantify price transmission through the global-exporter–processor–producer coffee supply chain in Papua, New Guinea. We find empirical evidence of upstream price transmission from the global market to domestic exporters and processors, but not through to producers. |
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| ISSN: | 2071-1050 |