A Study Of Determinants Of Food Price Level In China

In developing countries like China, food consumption has always played a conspicuous part in economic life. This thesis begins by examining the relationship between food price and CPI, and has found that food price explains much of the trend of CPI. So it is imperative to understand changes in food price. Based on China’s economic facts, the thesis studies the determinants of food price from both theoretical and empirical aspects.After tracing the trails of classical economics and the differences in ideas persisted among modern macroeconomists, the thesis summarized eight important factors influencing food price, that is, food supply and demand, money supply and demand, economic growth, employment level, expectations and price inertia, market speculation, government policy, and international factors. They determine food price level collectively through an extraordinarily complicated mechanism. Then, the closely theoretical analyses have been respectively made.Empirical analyses largely support the theoretical conclusions. This part combines three econometric tools, multiple linear regression model, Granger causality test and VAR model, to consider the determinants and their contribution to food price. The econometric framework is not inclusive of two factors of market speculation and government policy because of the difficulty in describing them with appropriate time-series data. Empirical results show that, of all variables, the one that has exerted the greatest influence upon food price, is price inertia. The significant roles of other four variables-grain yield per capita, money supply, economic growth and international food price-have also been confirmed. As a variable indicated employment level, however, intersectoral migration of agricultural labor force has failed to pass the statistical robustness tests, its actual effect remains unclear.