Hailemariam Ayalew – University of Copenhagen

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Hailemariam Ayalew

"Commodity Exchange and Spatial Price Dispersion: Evidence from Ethiopia"

Abstract

We examine the impact of commodity exchange on spatial price dispersion using the introduction of the Ethiopian commodity exchange as a quasi-experiment. We use a novel identification strategy which compares the price dispersion of commodities traded at the exchange market, maize and wheat, with teff that is only traded at the local market.

This strategy gives a better estimate by removing confounding factors associated with road quality improvement and diesel price shock that could exist if we only use one commodity. Results show that the Ethiopian Commodity Exchange significantly reduces the spatial price dispersion of maize and wheat compared to teff. This effect varies depending on the length of treatment duration and crop type.

Longer treatment duration is associated with a higher reduction in spatial price dispersion. We also decompose the price effect of the program into different channels. Price dissemination through plasma boards is found to be one of the main channel through which the commodity exchange affect spatial price dispersion in Ethiopia