Evidence of spatial price transmission in the case of Kosovo

Abstract

This study is focused on the analysis of spatial price transmission and market integration of Kosovo agricultural markets with world and EU markets. The paper employs asymmetric error correction model to quantify the extent, speed and nature of price adjustment for the long-run relationship between Kosovo, world and EU agricultural commodity prices. Monthly price data for key cereals (wheat, maize, barley) and beef meat covering the period 2004-2016 are used. Main findings of the study suggest that Kosovo is vulnerable to price transmitting signals from world and EU markets. Empirical results reveal evidence of asymmetry between Kosovo and world prices and signify stronger long-run relationship with the EU prices. Kosovo agricultural markets reacts to positive and negative price deviations, while world and EU prices do not respond on Kosovo price shocks. Kosovo as a price taker and as a country heavily reliant on agricultural and food imports has limited policy instruments to mitigate transmission of global price vulnerability. Under the current liberal trade regime with the regional and EU countries, any trade restrictive actions would have harming welfare effects on domestic consumers. Findings of this study contribute to agricultural and trade policymakers dealing with food prices and food security.