An analysis of spatial market integration: a case of Zambian dry bean markets connected by informal trade to Tanzania and the Democratic Republic of Congo

Sunga, Chalwe (2017-03)

Thesis (MScAgric)--Stellenbosch University, 2017.

Thesis

ENGLISH SUMMARY : Intra regional trade has the potential to contribute to food supply balance between surplus and deficit countries. However, this critical role can only be accomplished if surplus and deficit zones across countries are integrated. Most previous studies examining integration in food markets in Eastern and Southern Africa (ESA), partly attribute weak inter country market integration to restrictive trade policies and transfer costs. Yet, little evidence has been gathered to examine how international markets free from direct political influence may perform. This thesis examines spatial integration between ESA dry bean markets where inter-market trade is predominantly conducted through informal channels. By focusing on a pair of markets in Zambia and Tanzania, and a pair of markets in Zambia and the Democratic republic of Congo (DRC), the study employed the Myers and Jayne (2012) extension of the Threshold Autoregressive (TAR) model, which explicitly incorporates transfer costs and allows the long run price equilibrium relationship to vary depending on the magnitude of inter-market bean trade. The analysis also adopted the Gonzalo and Pitarakis (2002) approach in locating the value and number of trade based thresholds. The study combined bean prices, transfer cost and trade volume data covering the period January 2006 to June 2016, for Kitwe, in Zambia and Lubumbashi, in the DRC; and Kasama, in Zambia and Mbeya, in Tanzania. The empirical results revealed significant variations between the studied market pairs. Firstly, the study found no evidence to support informal trade based threshold effects in either market pairing, suggesting that the functioning of informal markets is independent of exogenous limitation to trade. Secondly, results indicated that there is a long run price equilibrium relationship between Kasama and Mbeya, implying that the two markets are integrated. In the case of Lubumbashi and Kitwe however, results indicated that the two markets are segmented. The latter finding implies that any significant price deviations above transfer cost between Lubumbashi and Kitwe may continue to grow without any tendency to equilibrium. Lastly, the adjustment process to price shocks, as measured by the speed of price transmission, is more rapid between Kasama and Mbeya markets (1.72 months) than Lubumbashi and Kitwe markets (5.3 months) despite both markets being dominantly connected by informal trade. This study therefore concludes that unless other market operating environment aspects are improved, a policy focus on informal trade and intra-regional trade liberalization in Eastern and Southern Africa may not by itself always guarantee integrated intra-regional food markets. It is therefore recommended that the food market operating environment be improved beyond simply liberalising regional trade.

AFRIKAANSE OPSOMMING : Die potensiaal van intra-streekse handel om by te dra tot streeks voedsel balans tussen surplus en tekort lande, is geidentifiseer. Hierdie kritieke rol kan egter slegs tot stand gebring word as surplus en tekort sones regoor lande geintegreer word. Die meeste vorige studies wat integrasie in voedselmarkte in Oos- en Suider-Afrika (ESA) ondersoek, skryf swak tussen-land mark integrasie deels toe aan beperkende handelsbeleid en oordragskoste. Tog is min bewyse versamel om te ondersoek hoe die internasionale markte vry van direkte politieke invloed kan presteer. Hierdie tesis ondersoek ruimtelike integrasie tussen ESA droeboon markte, waar tussen-mark handel hoofsaaklik gedoen word deur informele kanale. Deur te fokus op die markpaar Zambie en Tanzanie, en die markpaar Zambie en die Demokratiese Republiek van die Kongo (DRK), het hierdie studie die Myers en Jayne (2012) verlenging van die Drempel Outoregressiewe (TAR) model gebruik, wat oordragkoste insluit en die langtermyn ewewigsprys verhouding laat wissel na gelang van die omvang van tussen-mark boonhandel. Die analise het ook die Gonzalo en Pitarakis (2002) benadering gevolg om die waarde en aantal handel gebaseerde drempels te bepaal. Die studie het boonpryse, oordragkoste en handelvolume data gekombineer vir die tydperk Januarie 2006 tot Junie 2016, vir Kitwe, Zambie en Lubumbashi in die DRK; en Kasama, in Zambie en Mbeya, Tanzanie. Die resultate dui op beduidende verskille tussen die bestudeerde markte. Eerstens, die studie het geen bewyse gevind om informele handel op grond van drumpeleffekte in enige van die markpare te ondersteun nie, wat daarop dui dat die funksionering van die informele markte onafhanklik van eksterne beperkings op handel is. In die tweede plek, dui resultate daarop dat daar 'n langtermyn prysewewig verhouding tussen Kasama en Mbeya is, wat impliseer dat die twee markte geintegreer is. In die geval van Lubumbashi en Kitwe is egter bevind dat die twee markte gesegmenteer is. Laasgenoemde bevinding impliseer dat enige beduidende prysafwykings bo oordragkoste tussen Lubumbashi en Kitwe mag voortgaan om te groei sonder enige neiging tot ewewig. Ten slotte, die aanpassingsproses na prysskokke, soos gemeet deur die spoed van prysoordrag, is vinniger tussen Kasama en Mbeya markte (1.72 maande) as tusssen Lubumbashi en Kitwe markte (4.7 maande) ondanks die feit dat beide markte oorheersend verbind word deur informele handel. Die studie se gevolgtrekking is dus dat tensy ander mark bedryfsomgewing aspekte verbeter, 'n beleid gefokus op informele handel en liberalisering van binne-streekhandel nie op sigself altyd geintegreerde binne-streeks voedsel markte sal waarborg nie. Dit word dus aanbeveel dat die voedselmark bedryfsomgewing verbeter word met meer as net die liberalisering van streekshandel.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/101242
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