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Abstract
This study uses a rich dataset of 85 market pairs between January 2000 and
October 2008 for Kenya, Tanzanian and Uganda, the three largest member countries of
the East Africa Community, to analyze the factors determining national and cross-national
maize price transmission. Although the three countries are members of the
community’s customs union and they each claim to pursue maize trade without borders,
their agricultural trade policies still differ, thus affecting prices and trade flows to
different extents. This analysis extends the existing border effects literature in three
ways. First, it assesses the magnitude of price transmission, instead of analyzing trade
flows or price variability. Second, distance is shown to have a significant impact on price
transmission in the region and to be of nonlinear nature, which is modelled using a semiparametric
partially linear model. Third, the border effect is found to be heterogeneous,
that is, it matters which national border is crossed. A strongly negative effect of the
Tanzanian-Kenyan border appears, while no significant effect for the crossing of the
Ugandan-Kenyan border exists. These results are of high political relevance because they
show that Tanzania represents a rather isolated and internally fragmented island within
the East African maize markets. Bilateral maize trade with Nairobi appears to display
substantially higher price transmission than with the rest of the markets, confirming its
economic importance in the East African region and the structural maize deficit in
Kenya.