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Decomposing Variability in Agricultural Prices
Has government intervention in India's agriculture in the post-World Trade Organisation period helped in lowering the variability in domestic prices by not allowing the full transmission of international price signals? Examining this question, this paper makes an attempt to decompose changes in the domestic prices of select agricultural commodities by using a decomposition model. This allows separating the factors responsible for changes in domestic prices and quantifying their effects. The key variables in the model are trade prices, the exchange rate, and agricultural trade policies.
This paper was written while I was Fox International Fellow at Yale University and visiting scholar at the United States Department of Agriculture, Washington DC. I thank C P Chandrasekhar (Jawaharlal Nehru University, New Delhi) and William Liefert (Senior Agriculture Economist, USDA) for conceptual feedback and guidance on the decomposition model used in the paper. I also thank an anonymous referee whose comments greatly helped in improving the presentation of the argument.
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