Intercommodity Price Transmission Between Maize and Rice Prices in Tanzania: Evidence from Co-Integration Analysis and Error Correction Model

Abstract

 This study seeks to investigate whether or not there is a long-term relationship between maize and rice prices in Tanzania. The study used monthly wholesale prices for both commodities over the period of July 1989 through December 2012. The findings indicate that there is strong evidence of long-run equilibrium relation between the two commodities prices. The estimates of the error correction models (ECMs) showed a bidirectional long-run causality between the two commodities in many tests although there were relatively fewer cases that revealed the presence of a unidirectional long-run causality. Certainly, a continued effort by government and key stakeholders in the agricultural sector to improve the transportation infrastructure should ease inter-regional flow of commodities in Tanzania and facilitate the price transmission mechanisms. Similar efforts to improve the dissemination of market information through means such as mobile-phone based market information are ideal in promoting inter-regional trade and stabilizing prices of related tradeable commodities.