INSTITUTIONS AND PRICE TRANSMISSION IN THE VIETNAMESE HOG MARKET

The Vietnamese Hog Market

H0: b2¹ 5 b2².

The inclusion of the error correction term in (3) reconciles potential cointegration
relations with symmetry analysis. However, von Cramon-Taubadel (1998) points
out that simultaneity between P_r and P_p and data frequency can influence attempts
to measure asymmetry, and notes that weekly data are sufficient for price
transmission analysis in European pork markets. To avoid inconsistent estimation
because of potential simultaneity between prices, he also suggests testing for weak
exogeneity of the variables in the model. The method used is the one introduced
by Boswijk and Urbain (1997) where the error correction representation in (3) is
completed by a marginal model for P_p:

DPp,t 5 g01 g1~L!DPr,t1 1 g2~L!DPp,t21 1 nt              (4)

The weak exogenity of P_p with respect to the short run parameter is tested by a
variable addition test of the error correction term ECT_t-1 in (4).

Data and Results

Data used in the study include weekly prices of live hog and pork from ten
provinces in Vietnam. The data were collected by the Vietnamese Institute for
Markets and Prices from January 1993 to June 1998 (264 observations). Producer
prices in the North are represented by average live hog prices in the provinces of
Vinh Phu, Ha Tay, Nam Dinh, and Nghe, which are the areas supplying Ha Noi
regularly. Retail prices in the North are the average prices of ham in Ha Noi
markets. Producer prices in the South are represented by average live hog prices
in the provinces of Dong Nai, Quang Ngai, Tieng Giang, and Vinh Long, which
are Ho Chi Minh City’s major suppliers. Retail prices in the South are the average
prices of ham in Ho Chi Minh City markets.

All data are deflated using the Consumer Price Index provided by the
Department of Trade and Price Statistics in Ha Noi. Using the Augmented Dickey
Fuller (ADF) test (Dickey and Fuller, 1979), we fail to reject the null hypothesis
of nonstationarity for each time series (Table 1). P_p and P_r in both regions may,
therefore, be cointegrated. The Johansen (1988, 1990) procedure is then used to
test for cointegration between P_p and P_r in both regions. Results from the tests are
presented in Table 2 and show that P_p and P_r are not cointegrated in the North but
are cointegrated in the South. Therefore, to analyze vertical price transmission and
asymmetry in the hog marketing chain in Vietnam, we use model (2) for the North
and models (3) and (4) for the South.

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