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Abstract
The effect of recent agricultural market reforms in many developing countries is
often measured through tests for market integration by analyzing co-variation of
food prices. However, market integration studies often fail to link the discovery of
the lack of integration to causal factors. This analysis documents and relates
price variation to structural determinants in the case of Madagascar. The spatial
variability between communities is linked to the distance to a paved road, the
quality of the road, access to soft infrastructure, and the level of competition
between traders. Differences in seasonal variation are mainly related to the
differential opportunity costs of capital in rice villages and to hard infrastructure
in non-rice villages. Communities that lack basic infrastructure show lower prices
during the harvest season and higher seasonal gaps. Moreover, it is shown that
road distance matters more than road quality during the harvest period as there
is no strong relationship between road quality and the producer price decline per
unit of time. While the presence of roads shows up in relatively higher producer
prices, it does not automatically lead to more competition among traders. Hence,
investment in hard infrastructure is not sufficient to successfully increase market
access. However, soft infrastructure on top of hard infrastructure seems
beneficial for increased producer prices, reduced price variability, and improved
market integration.