Agricultural price transmission elasticity: importance of controlling for unobserved common factors

Jagath Dissanayake*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)

Abstract

A voluminous amount of the literature estimates price transmission from world markets to domestic markets ignoring unobserved factors that commonly affect domestic markets. This article reevaluates the long-run and short-run transmission elasticity of world food price shocks to domestic markets using a “common factor framework” that takes unobserved common factors that are correlated with regressors into consideration. In the estimation, annual price data for rice, wheat, and maize for a panel of developed and developing countries that are observed over the period of 1960–2007 are used. The results from a common factor framework to those that do not account for common factors are then compared. Our findings suggest that ignorance of common factors is likely to result in upwardly biased elasticity estimates.

Original languageEnglish
Pages (from-to)523-531
Number of pages9
JournalAgricultural Economics (United Kingdom)
Volume47
Issue number5
DOIs
Publication statusPublished - 1 Sept 2016

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