Estimating policy effects on spatial market efficiency: an extension to the parity bounds model.

[[lambda].sub.3] 0.503 0.000

(0.135) -- Policy effects

[[delta].sub.1] 0.000 -0.290

(0.000) (0.093)

[[delta].sub.2] 0.502 -0.418

(0.135) (0.186)

[[delta].sub.3] -0.502 0.708

(0.135) (0.093) Standard deviations

[[sigma].sub.e] 8.953 7.995

(2.885) (2.375)

[[sigma].sub.u] 10.578 15.226

(6.502) (3.832)

[[sigma].sub.v] 15.932 18.125

(4.098) (3.499) Transfer costs

[[alpha] 8.130 11.636

(5.373) (2.410) Transition period 4 0 Log likelihood

Restricted -297.243 -310.635

Unrestricted -294.744 -299.500 LR test

[chi square] (2) 4.998 22.270

Statistics (0.082) (0.000)

Observations 73 73

Maize Trade Route

Nazret & Shashemene EPBM Dire & Parameters Dawa Dawa Regime probabilities

[[lambda].sub.1] 0.028 0.159

(0.085) (0.087)

[[lambda].sub.2] 0.971 0.840

(0.085) (0.087)

[[lambda].sub.3] 0.000 0.000

-- -- Policy effects

[[delta].sub.1] 0.225 -0.158

(0.207) (0.087)

[[delta].sub.2] -0.970 -0.162

(0.085) (0.115)

[[delta].sub.3] 0.745 0.320

(0.223) (0.088) Standard deviations

[[sigma].sub.e] 12.406 1.695

(1.305) (0.579)

[[sigma].sub.u] 0.001 25.760

(0.002) (2.502)

[[sigma].sub.v] 21.275 19.103

(5.061) (4.184) Transfer costs

[[alpha] 5.856 28.309

(1.930) (0.941) Transition period 0 0 Log likelihood

Restricted -308.965 -312.417

Unrestricted -300.163 -305.216 LR test

[chi square] (2) 17.604 14.402

Statistics (0.000) (0.000)

Observations 73 72 Notes: Numbers in parentheses are standard errors (p-values in the case of [chi square] statistics). A dash for the standard error indicates not calculated due to the parameter estimate being at the boundary of the parameter space. The possible values of transition period range from 0 to 35. Table 2. Maximum Likelihood Estimates of Extended Parity Bounds Models for Wheat

Wheat Trade Route EPBM Robe & Hosaina & Addis & Addis & Parameters Addis Addis Dese Mekele Regime probabilities [[Lambda].sub.1] 0.305 0.000 0.000 0.000

(0.152) -- -- -- [[Lambda].sub.2] 0.000 0.000 0.793 0.195

-- -- (0.272) (0.134) [[Lambda].sub.3] 0.695 1.000 0.206 0.804

(0.152) -- (0.272) (0.134) Policy effects [[delta].sub.1] -0.305 0.000 0.000 0.000

(0.152) -- -- -- [[delta].sub.2] 0.000 0.192 0.205 0.521

-- (0.094) (0.272) (0.132) [[delta].sub.3] 0.305 -0.192 -0.205 -0.522

(0.152) (0.094) (0.272) (0.132) Standard deviations [[sigma].sub.e] 5.699 2.756 10.646 9.605

(1.185) (1.004) (1.088) (4.643) [[sigma].sub.u] 0.001 4.782 0.719 20.149

(0.001) (2.100) (11.616) (7.249) [[sigma].sub.v] 20.390 19.450 12.579 33.002

(2.345) (1.941) (9.057) (6.222) Transfer costs [alpha] 21.424 18.450 0.217 18.802

(1.902) (1.423) (9.473) (8.500) Transition period 0 5 2 0 Log likelihood

Restricted -291.064 -285.331 -281.443 -347.798

Unrestricted -288.729 -282.291 -280.752 -339.379 LR test

[chi square] (2) 4.670 6.080 1.382 16.838

Statistics -0.097 -0.048 -0.501 0.000

Observations 73 73 73 73

Wheat Trade Route

Addis & Nazret & Shashemene EPBM Dire Dire & Dire Parameters Dawa Dawa Dawa Regime probabilities [[Lambda].sub.1] 0.186 0.000 0.134

(0.084) -- (0.058) [[Lambda].sub.2] 0.041 0.413 0.155

(0.044) (0.122) (0.059) [[Lambda].sub.3] 0.774 0.586 0.711

(0.083) (0.122) (0.075) Policy effects [[delta].sub.1] -0.186 0.000 -0.133

(0.084) -- (0.058) [[delta].sub.2] -0.040 -0.246 0.127

(0.043) (0.120) (0.102) [[delta].sub.3] 0.225 0.246 0.006

(0.083) (0.120) (0.114) Standard deviations [[sigma].sub.e] 1.783 3.189 0.241

(0.592) (3.105) (0.075) [[sigma].sub.u] 6.934 6.069 11.750

(4.373) (4.753) (2.123) [[sigma].sub.v] 33.576 34.834 33.110

(3.196) (3.831) (3.469) Transfer costs [alpha] 2.773 21.686 28.718

(0.824) (4.739) (0.111) Transition period 13 2 6 Log likelihood

Restricted -312.878 -322.155 -322.94

Unrestricted -311.717 -320.121 -314.99 LR test

[chi square] (2) 2.322 4.068 15.900

Statistics -0.313 -0.131 0.000

Observations 73 73 72 Notes: Numbers in parentheses are standard errors (p-values in the case of [chi square] statistics). A dash for the standard error indicates not calculated due to the parameter estimate being at the boundary of the parameter space. The possible values of transition period range from 0 to 35. Table 3. Mean Spatial Price Differentials, Transfer Costs, and Returns to Spatial Arbitrage (Birr/100 kg)

Maize

Distance Price Transfer Market Pair (km) Differential Cost Profit

First subperiod (1996:08 to

1999:09) Robe & Addis 442 -- -- -- Hosaina & Addis 232 -- -- -- Jima & Addis 346 12.53 14.29 -1.77 Nekemte & Addis 327 16.99 20.16 -3.17 Addis & Dese 402 11.24 15.31 -4.07 Addis & Mekele 783 -39.24 39.82 -0.59 Addis & Dire Dawa 515 -23.32 31.96 -8.64 Nazret & Dire Dawa 417 22.59 22.28 0.30 Shashemene & Dire 572 33.31 50.95 -17.64

Second subperiod (1999:10 to

2002:08) Robe & Addis 442 -- -- -- Hosaina & Addis 232 -- -- -- Jima & Addis 346 14.66 14.85 -0.19 Nekemte & Addis 327 25.86 20.32 5.54 Addis & Dese 402 13.04 14.41 -1.37 Addis & Mekele 783 34.90 39.57 -4.66 Addis & Dire Dawa 515 37.79 31.38 6.41 Nazret & Dire Dawa 417 34.14 21.81 12.32 Shashemene & Dire 572 39.12 50.24 -11.12