A Vector Error Correction Model to Estimate Potato Supply Response in Colombia

Abstract

The present study aims to investigate the relationship between potato output supply and potato and fertilizer prices in Colombia using 2003-2018 time series data. Johansen’s cointegration and the vector error correction framework were employed, and Granger and diagnostic tests were performed. The empirical results show a strong causal relationship between the variables and that the signs and the magnitude of coefficients are statistically significant. Potato and fertilizer prices are inelastic, and the speed adjustment coefficient of 70 % implies that it takes a short time for farmers to respond to price movements. It can be concluded that own-price and fertilizer prices are significant in determining output supply responsiveness in both the short and long run.