Market liberalization and spatial market integration : the case of Malawian maize markets

Abstract

The role of markets in influencing food security cannot be overemphasized. Therefore it is important to understand how policies aimed at influencing market policy have performed. This paper studies how market liberalization policies have affected market efficiency in Malawian Maize markets. Using monthly time series price data from 12 markets in Malawi for the period from 1991 to 2016, market efficiency is measured using market integration as an indicator. Vector Error Correction models and Threshold auto regression models are used to measure the magnitude, direction and speed of market integration. We find that compared to maize market integration studies, market integration is indeed high, with average percent values of long run price transmission around 97% thereby supporting the law of one price. Speed of adjustment parameters for the Vector error correction model were on average 23% indicating a time frame of 4 months for market to return to equilibrium after a shock. The threshold auto regression model results indicate much faster speeds of adjustment, with an average time range of 2 weeks for half of the disequilibrium to be corrected. Therefore, Market Liberalization policies, even under frequent government intervention has led to increased market efficiency.