The Ethiopian Commodity Exchange and spatial price dispersion |
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| Institution: | 1. Department of Business Administration, Technology and Social Sciences, Luleå University of Technology, SE-971 87 Luleå, Sweden;2. Environment and Climate Research center at the Ethiopian Development Research Institute, Addis Ababa, Ethiopia;3. School of Business and Economics, UiT the Arctic University of Norway, PO Box 6050, Langnes, Tromsø, Norway;1. Department of Applied Economics, University of Minnesota, 1994 Buford Ave, Saint Paul, MN 55108, United States;2. Department of Food, Agricultural & Resource Economics, University of Guelph, 50 Stone Road East, Guelph, ON N1G 2W1, Canada;3. Department of Economics, Colby College, 5237 Mayflower Hill, Waterville, ME 04901, United States;1. International Food Policy Research Institute (IFPRI), Ethiopia Strategy Support Program (ESSP), PO Box 5689, Addis Ababa, Ethiopia;2. Ethiopian Development Research Institute (EDRI), Ethiopia;3. Institute for Food and Resource Economics, Bonn University, Germany |
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| Abstract: | In this article, we study the impact of an institutional intervention on market efficiency in Ethiopia. More specifically, we analyze to what extent the Ethiopian Commodity Exchange (ECX) in combination with regional warehouses have contributed to a reduction in price spreads between regional markets. Our hypothesis is that warehouses connected to the ECX reduce the dispersion between export prices and local retail prices in different coffee growing areas, as well as the dispersion between export prices and local retail prices in different coffee growing areas. By doing so, the ECX has the potential to improve the market efficiency. To identify the causal effect, we combine retail price data with information on the gradual rollout of warehouses connected to the ECX from 2007 to 2012. Our results suggest that, when two markets both have access to an operating warehouse, the average price spread is 0.86–1.78 ETB lower than it is for markets where at least one part lacks warehouse access. This is a substantial reduction considering that the average price spread over the full period is 3.33 ETB. The main results are robust to various econometric specifications, and our analysis thus suggests that local warehouses connected to the ECX have indeed improved market efficiency. |
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| Keywords: | Coffee Commodity exchanges Ethiopia Price dispersion Warehouses |
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