Spatial Differences in Rice Price Volatility: A Case Study of Pakistan 1994–2011

Burhan Ahmad, Ole Gjølberg, Mubashir Mehdi

Abstract


Prices of agricultural commodities tend to be more volatile in
comparison to other commodities. Volatility can result in inefficient
allocation of the resources by the farmers, traders and consumers. Rice
is the second major staple and export item of Pakistan. This study
presents the trends in volatility of regional rice markets of Pakistan
and analyses spatial differences in volatility across regional rice
markets in Pakistan from 1994 to 2011, and also draws comparison of
volatility with the international market. ARCH-LM tests are applied to
check the presence of volatility and volatility clustering is found in
all the markets. Tests for equality of variance and dynamic conditional
correlations (DCC) GARCH model are employed to analyse the spatial
differences across the regional rice markets of Pakistan. The results
indicate the presence of spatial differences in volatility. Positive
conditional correlations in the dynamic conditional correlations (DCC)
GARCH model are found which indicate positive association of volatility
across markets. Spatial differences in volatility and its persistence
reflect the differences in market forces, infrastructure and information
flow which leads to varying degree of risk across markets and some
regions are exposed to higher risk. The study found out that Hyderabad
and Sukkur are the most volatile markets and their volatility levels are
highly persistent and require highest time to return to its long-term
mean which makes them the riskiest rice markets. Investments in
infrastructure, particularly in transportation and controlling the
market power of middlemen may reduce price risk across markets
particularly in the most risky markets. JEL Classification: C22, C32,
Q11, Q13, Q18 Keywords: Rice Prices Volatility, Regional Markets,
Pakistan. DCC-GARCH-models

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DOI: https://doi.org/10.30541/v56i3pp.265-289

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