PRICE VOLATILITY AND EFFICIENCY OF ECUADOR'S AGRICULTURAL RURAL MARKETS

This article develops an empirical analysis of an important characteristic of primary commodities: persistence of price variability in response to shocks, asymmetry in variability, and volatility of prices. This analysis is applied for 14 Ecuador ian internal consumption products for the period January 1992 - July 2007. Three types of Autoregressive Conditional Heteroskedasticity (ARCH) models are used to test the hypotheses of persistence, asymmetry and volatility. This topic is particularly important for small-scale agricultural production in developing countries as variability in prices does not allow them to anticipate price movements and therefore improve their decision making process related to crop selection, period of cultivation, and technology selection. So variability of prices may be considered an important indicator of rural market efficiency. Given that there are not policies intended to reduce the exposure of small farmers to such variations, market-based strategies are urgent to reduce the risk of small-farmer agricultural production.