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Impacts of institutional intervention on price transmissions : the case of the Ethiopian commodity exchange

(2017) REVIEW OF DEVELOPMENT ECONOMICS. 21(4). p.e88-e106
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Abstract
In the aftermath of the market liberalization reforms, interventions in developing countries shifted toward building institutions. One of such interventions is the introduction of commodity exchanges. The theoretical justification is that commoditization reduces the high transaction costs associated with the information and enforcement problems characterizing agricultural markets of these countries. However it is not known whether these potential gains are transmitted to the various markets along a value chain. By taking the Ethiopian Commodity Exchange (ECX) as a case, this paper examines the impacts of the introduction of the commodity exchange in transmitting price signals along the coffee value chain (world-export-auction-producer prices). We found that both the speed and symmetry of transmission remains weak even after the launch of ECX. At each level, the market chain was found to favor buyers. This implies that not only the country's gains from export are sub-optimal, the cumulative burden is on the millions of smallholder farmers who are located at the bottom of the chain. In a context where local agricultural markets remain traditional and export markets barely competitive, the introduction of the commodity exchange will have limited impacts in improving the performance of markets in transmitting price signals. Other policy measures to further liberalize both local and export markets are required.
Keywords
TRANSACTION COSTS, PRODUCER PRICE, COFFEE MARKETS, ADJUSTMENT, COINTEGRATION, INFORMATION, AFRICA, LIBERALIZATION, VOLATILITY, POLICIES

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Chicago
Mersha, Fekadu Gelaw, Stijn Speelman, and Guido Van Huylenbroeck. 2017. “Impacts of Institutional Intervention on Price Transmissions : the Case of the Ethiopian Commodity Exchange.” Review of Development Economics 21 (4): e88–e106.
APA
Mersha, F. G., Speelman, S., & Van Huylenbroeck, G. (2017). Impacts of institutional intervention on price transmissions : the case of the Ethiopian commodity exchange. REVIEW OF DEVELOPMENT ECONOMICS, 21(4), e88–e106.
Vancouver
1.
Mersha FG, Speelman S, Van Huylenbroeck G. Impacts of institutional intervention on price transmissions : the case of the Ethiopian commodity exchange. REVIEW OF DEVELOPMENT ECONOMICS. 2017;21(4):e88–e106.
MLA
Mersha, Fekadu Gelaw, Stijn Speelman, and Guido Van Huylenbroeck. “Impacts of Institutional Intervention on Price Transmissions : the Case of the Ethiopian Commodity Exchange.” REVIEW OF DEVELOPMENT ECONOMICS 21.4 (2017): e88–e106. Print.
@article{8548340,
  abstract     = {In the aftermath of the market liberalization reforms, interventions in developing countries shifted toward building institutions. One of such interventions is the introduction of commodity exchanges. The theoretical justification is that commoditization reduces the high transaction costs associated with the information and enforcement problems characterizing agricultural markets of these countries. However it is not known whether these potential gains are transmitted to the various markets along a value chain. By taking the Ethiopian Commodity Exchange (ECX) as a case, this paper examines the impacts of the introduction of the commodity exchange in transmitting price signals along the coffee value chain (world-export-auction-producer prices). We found that both the speed and symmetry of transmission remains weak even after the launch of ECX. At each level, the market chain was found to favor buyers. This implies that not only the country's gains from export are sub-optimal, the cumulative burden is on the millions of smallholder farmers who are located at the bottom of the chain. In a context where local agricultural markets remain traditional and export markets barely competitive, the introduction of the commodity exchange will have limited impacts in improving the performance of markets in transmitting price signals. Other policy measures to further liberalize both local and export markets are required.},
  author       = {Mersha, Fekadu Gelaw and Speelman, Stijn and Van Huylenbroeck, Guido},
  issn         = {1363-6669},
  journal      = {REVIEW OF DEVELOPMENT ECONOMICS},
  keywords     = {TRANSACTION COSTS,PRODUCER PRICE,COFFEE MARKETS,ADJUSTMENT,COINTEGRATION,INFORMATION,AFRICA,LIBERALIZATION,VOLATILITY,POLICIES},
  language     = {eng},
  number       = {4},
  pages        = {e88--e106},
  title        = {Impacts of institutional intervention on price transmissions : the case of the Ethiopian commodity exchange},
  url          = {http://dx.doi.org/10.1111/rode.12312},
  volume       = {21},
  year         = {2017},
}

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