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Abstract
The study analyzed the responsiveness of maize grain and maize meal spatial price volatilities to
increased government participation in maize grain marketing in Zambia using descriptive
statistics and vector auto-regression (VAR). This was achieved by comparing spatial price
volatility means and spatial price means for the period under increased government participation
with respective means for periods under limited government participation. Also, spatial price
volatilities were regressed against own spatial price and cross price means, cross price spatial
volatilities, seasonality and arbitrage level. Lastly, the extent of spatial volatility discovery in the
two vertical markets (maize grain and maize meal) was discovered from VAR equations. Real
monthly price data for January 2003 to May 2011 from 8 major markets were used in the study.
Empirical results indicated increased government participation reduced spatial price volatilities
for both commodities. The VAR model identified own spatial price mean reduction as the major
determinant of spatial price volatility reduction for both commodities compared to other
variables. Maize meal spatial price volatility was also determined by one month lagged maize
grain spatial price mean. Spatial price volatility for each commodity was higher in months with
low prices and lower in months with high prices. Reduced arbitrage exerted more reducing effect
on price volatility of maize grain than on maize meal price volatility. Most volatility discovery
occured in maize meal market although government intervened in maize grain marketing. The
study concluded that increased government participation significantly reduced price volatilities
for both commodities. Moderated government intervention to a level that still guarantees
arbitrage by many players, especially in the maize meal market, was recommended.