The transmission of world maize price to South African maize market: a threshold cointegration approach

Authors

  • Babatunde O. Abidoye,

    Corresponding author
    1. The Bureau for Food and Agricultural Policy (BFAP), Department of Agricultural Economics, Extension and Rural Development, University of Pretoria, Pretoria, South Africa
    2. Centre for Environmental Economics & Policy in Africa (CEEPA), Department of Agricultural Economics, Extension and Rural Development, Faculty of Natural and Agricultural Sciences, University of Pretoria, Pretoria, South Africa
    • Corresponding author. Tel: +2-712-420-5771; fax: +2-712-420-4958. E-mail address: babidoye@up.ac.za (B.O. Abidoye).

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  • Marlene Labuschagne

    1. The Bureau for Food and Agricultural Policy (BFAP), Department of Agricultural Economics, Extension and Rural Development, University of Pretoria, Pretoria, South Africa
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Abstract

This article seeks to provide an explanation for the relationship between domestic maize price in South Africa and world maize prices in order to evaluate comovement and transmission of world prices to domestic prices in sub-Sahara African countries. This is done by comparing nested and nonnested models that capture different forms of nonlinearity in the price spread. Adopting a Bayesian approach that allows for comparison of models using Bayes factor, we found that the relationship between South African price and world price for maize indicates the presence of nonlinearity in price transmission with three regimes that is triggered by the price spread in previous period.

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