Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets*

Marshall Burke, Lauren Falcao Bergquist and Edward Miguel

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

Abstract: Large and regular seasonal price fluctuations in local grain markets appear to offer African farmers substantial intertemporal arbitrage opportunities, but these opportunities remain largely unexploited. Small-scale farmers are commonly observed to “sell low and buy high,” rather than the reverse. In a field experiment in Kenya, we show that credit market imperfections limit farmers' abilities to move grain intertemporally. Providing timely access to credit allows farmers to buy at lower prices and sell at higher prices, increasing farm revenues and generating a return on investment of 29%. To understand general equilibrium (GE) effects of these changes in behavior, we vary the density of loan offers across locations. We document significant effects of the credit intervention on seasonal price fluctuations in local grain markets, and show that these GE effects shape individual-level profitability estimates. In contrast to existing experimental work, the results indicate a setting in which microcredit can improve firm profitability, and suggest that GE effects can substantially shape microcredit's effectiveness. In particular, failure to consider these GE effects could lead to underestimates of the social welfare benefits of microcredit interventions. JEL Codes: D21, D51, G21, O13, O16, Q12.

Keywords: Economics; Applied Economics; Econometrics; Economic Theory; Applied economics; Economic theory (search for similar items in EconPapers)
Date: 2019-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.escholarship.org/uc/item/2xh3z1jn.pdf;origin=repeccitec (application/pdf)

Related works:
Journal Article: Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets (2019)
Working Paper: Sell Low and Buy High: Arbitrage and Local Price Effects in Kenyan Markets (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cdl:econwp:qt2xh3z1jn

Access Statistics for this paper

More papers in Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley Contact information at EDIRC.
Bibliographic data for series maintained by Lisa Schiff ().