Government trade intervention, thin markets and international price fluctuations: The case of the world rice market

Past studies of the world rice market argue that the world rice market is "thin" and hence, world rice prices fluctuate widely. The explanation is vague not only because the concept of thin markets is not well-defined, but also because thin markets cannot be regarded as exogenous.;This dissertation examines the underlying sources of the world rice price fluctuations and develops some fundamental propositions about thin markets for policy analysis and evaluation. An inductive nature-causes-consequences approach is adopted for the present study of the thinness of the world rice market. The nature of the thinness is found to have four attributes: low trade to production ratio, high frequency of partner switching, high price fluctuations and the lack of investments for international trade arrangements. The causes of these attributes are found to be the high self-sufficiency among market participating countries, the high trade barriers, the moderate random supply and demand disturbances and the active government intervention in trade. Using a spatial price equilibrium model and a transactions costs model, the theoretical relationships between these elements of nature and causes are found to be that (i) in a market with positive costs of trade, changes in the level of self-sufficiency among market participating countries have no effect on the impact of random supply and demand disturbances on world price fluctuations (if the changes in levels of self-sufficiency do not affect the frequency of partner switching); (ii) changes in the costs of trade affect the impact of random supply and demand disturbances on world price fluctuations positively if and only if the direct positive impact of the changes in the costs of trade on price fluctuations is larger than the indirect negative impact of the changes in the frequency of partner switching (caused by the changes in costs of trade) on price fluctuations; and (iii) comparative advantage and transaction technology determine the degree to which a country would invest in the arrangements for trade.;Policy implications drawn from the findings call for cooperative and joint efforts to remove trade distortions such as self-sufficiency policies and to reduce the costs of trade.