@article{Ijambo:334744,
      recid = {334744},
      author = {Ijambo, Bertha Deshimona},
      title = {An econometric analysis of spatial market integration and  price formation in the Namibian sheep industry},
      address = {2017-12},
      pages = {150},
      year = {2017},
      abstract = {The Namibian government introduced the Small Stock  Marketing Scheme (SSMS) for the sheep market in 2004. The  SSMS is a quantitative export restriction. Quantitative  export restriction policies decrease the tradable quantity  of a commodity, and increases domestic supply of a  commodity, causing a lack of equilibrium in spatial  markets. This, therefore, has the capacity to hinder market  integration. Moreover, a quantitative export restriction  disrupts the domestic supply and demand, and ultimately the  equilibrium prices. A policy such as the quantitative  export restriction therefore determines the domestic price  levels. The effect of the SSMS on spatial market  integration and price formation remains unclear. A lack of  empirical evidence on spatial sheep market integration and  domestic price levels can create challenges for policy  makers. This is because a lack of evidence could prevent  policy makers from implementing evidence-based policies,  which might buffer poor consumers and producers from  adverse price shocks, and lead to improved resource  allocation. This study hypothesises that the SSMS policy  negatively affected the long-run equilibrium relationship  and short-run dynamics between the Namibian and South  African markets. The study further hypothesises that the  policy negatively influenced the level of equilibrium  prices. As a result, this study hence observes spatial  price integration in the presence of the SSMS, by defining  the long-run equilibrium and short-run dynamics. The  spatial price integration analysis is evaluated by  subdividing price series data into pre-SSMS  (1999M01-2003M12) and post-SSMS (2004M01-2015M12). The  long-run equilibrium relationship is conducted with the  Engle and Granger (1987) method and the Johansen (1988)  cointegration approach. Short-run dynamics are, in turn,  determined with an error correction model (ECM) and vector  error correction model (VECM). The study also examined the  impact of the SSMS on domestic price levels. This was done  by recognising the reaction of the domestic supply, demand,  and price functions to the SSMS. The analysis is conducted  within the partial equilibrium framework (PEF).  Additionally, the synthesis generated a simulation with the  PEF to determine the impact on price changes were the SSMS  to be removed. The analyses acknowledged a long-run  equilibrium relationship between the spatial markets. As  predicted, the long-run equilibrium relationship is not the  same, pre- and post-SSMS. The price transmission elasticity  (0.94) post-SSMS is marginally higher than pre-SSMS (0.88)  is, which contradicts a priori expectation that  quantitative export restrictions weaken price transmission.  The pre-SSMS evaluation indicated a presence of short-run  dynamics. Post-SSMS, the VECM revealed no bidirectional  effect. The VECM also specified that the Namibian prices  are effecting the adjustments in the short run to return to  the long-run equilibrium position. This implies that if  there is a shock that disturbs the equilibrium between the  two spatial prices, Namibian prices would move to restore  equilibrium. Likewise, the study appraised the response of  the supply and demand functions to the policy in the PEF,  incorporating the SSMS as an export ratio variable. The PEF  results displayed that the SSMS influenced the supply  function negatively, because of the negative elasticity of  0.013. This denotes that in the presences of the SSMS a 10  per cent increase in the quantitative export ratio  decreases supply by 0.13 per cent, in which the response is  slow. A negative effect is bound to decrease supply, and  increase domestic price levels. Furthermore, the SSMS had a  positive influence on the demand function, with an  elasticity of 0.03 for the export abattoir demand, and 0.93  for the non-export abattoir demand. A positive impact on  demand means a decrease in the producer price increases  demanded for live sheep. The price equation outcome  revealed that the SSMS had an insignificant effect of  -0.0044 on the domestic producer prices. The price equation  result is attributed to the low elasticity of the SSMS in  the domestic supply and demand equation; the continued  increase in producer prices post-SSMS due to the drought;  and finally, because the SSMS is allowed to vary. Based on  the simulation results, the removal of the SSMS policy  would increase domestic producer prices by 4 per cent and 6  per cent, in 2017 and 2018, respectively. The percentage  increase is considered low, as a result, this suggests that  other dynamic factors, such as drought and market  structure, affecting prices. This study therefore rejects  the hypothesis stating that the long-run equilibrium  relationship and short-run dynamic forces had reduced  post-SSMS price transmission. The price transmission and  speed of adjustment improved, post-SSMS. The study  concludes that the SSMS policy did not have a detrimental  effect, which was contrary to what was anticipated. The  synthesis further fails to reject the hypothesis stating  that the SSMS influenced domestic price levels, but the  influence was very minimal and negligible. Both the spatial  price integration and price formation analyses conclude  that the SSMS had no detrimental effect on the sheep  market. As a result, the study indicates that a  quantitative export restriction policy, which varies, is  better than an export control policy that does not allow  any variation.},
      url = {http://ageconsearch.umn.edu/record/334744},
      doi = {https://doi.org/10.22004/ag.econ.334744},
}