The structural diffusion of food market shocks in Sub-Saharan Africa

• Applicant: Dr. Bernhard Dalheimer
• Subject Area: Agricultural Economics, Agricultural Policy, Agricultural Sociology
• Term: since 2022
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 509105465

In Sub-Saharan Africa (SSA) food insecurity has been rising again since 2014. Food insecurity in the region is partly due to food price shocks which originate from extraordinary local or regional crisis events. For instance, the drought in Somalia in 2017 left more than 6 million people short of sufficient access to food and spread into South-Sudan as well as Nigeria. Given the presence of - at least informal – trade ties, crisis that unfold in one region often affect neighboring markets, within and across borders. In contrast to the weak world market integration of food markets in SSA and local long-term price equilibriums which both are comparably well understood, the diffusion and causal direction of transmission of short-term market shocks in SSA is under-researched. This gap in the literature is particularly striking given that (i) local food price shocks strongly affect food security and (ii) recent literature suggests that most of the variation of food price movements in SSA stem from markets nearby. However, the existing literature mostly relies on reduced-form multivariate time series models that do not allow to determine the causal flow of price relationships beyond temporal relation, withoutimposing non-testable economic assumptions. However, recent advances regarding the data-driven identification of shocks within Structural Vector Autoregression (SVAR) models allow to disentangle causal relationships among time series under fewer economic assumptions. Instead, they rely on the exogeneity of statistical properties of the data to reveal structural flows of impacts and thus render economic assumptions testable. I propose to analyze the structural relationships among food prices in SSA. First, the work aims to contribute to an improved understanding of the causal direction of food price dissemination within countries, into neighboring markets, within regional trade blocks and across the African continent. Second, the structural modelling of food price relationships aims at identifying and assessing trade and domestic policies that affectmarket functioning and act as critical determinants of the heterogeneous diffusion of food price shocks across markets, adding structural evidence to the knowledge-base on the mechanisms of respective domestic and trade policy. Third, the proposed modelingframework enables a re-assessment of the integration of some SSA markets under fewer economic assumptions, which, in turn, can be tested empirically. Altogether, the analysis is expected to extend the evidence-base on factors that buffer and those that accelerate food price shock dissemination in SSA and contribute to better informedfood security policy in the region.

• DFG Programme: Research Grants