Trade control policy changes price interactions between markets

What is it about?

The paper focused on maize markets and evaluated price transmission for between Zambia and Zimbabwe as well as South Africa and Zimbabwe under different regimes. Regimes are defined as periods with open trade from Zambia or the imposition of trade controls by the Zambian government. It showed that Zimbabwean maize prices are derived from Zambian markets under periods of open trade, but from South African markets when trade volumes from Zambia are controlled.

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Why is it important?

Whilst various authors have noted that trade is not a prerequisite for price transmission to occur, trade volumes have been associated with different price transmission regimes. This paper shows that policies limiting trade, which are often applied in African markets to keep prices at tolerable levels, reduce the efficiency of markets in the region. While others have alluded to policy influence on price transmission patterns, this paper is the first to define regimes specifically by trade policy.