A comparison of asymmetric price transmission from global to domestic markets between high and low quality grains: A case of Afghan rice markets

This study compares the magnitude of price transmission and speed of adjustment towards equilibrium between global and domestic prices of high and low quality rice under asymmetric equilibrium adjustment. The dynamics of price transmission are examined using asymmetric vector error correction models. A structural break is considered in testing for unit roots and cointegration. Interestingly, the findings indicate that the magnitude of price transmission and speed of adjustment may be different between high and low quality rice prices. The speed of adjustment may be faster for high quality rice prices whereas the magnitude of price transmission appears to be greater for those of low quality rice. Moreover, domestic prices of high and low quality rice exposed asymmetric adjustment to divergence from the longrun equilibrium with adjustment being faster and significant to positive than negative deviation from the equilibrium. It is also observed that the Granger causality possibly runs from global to domestic rice prices. The results implies that considering rice as a differentiated commodity in the price transmission analysis may improve our understanding of the relationship between global and domestic rice markets and enhance the effectiveness of policy proposals for developing the rice markets and reducing the vulnerability of the poor households to shocks in the rice markets.