No abstract

This paper examines the degree to which world price signals have been transmitted into domestic prices for eight countries and ten commodities, a total of 31 country/commodity pairs. The main characteristic of these countries was that they all undertook substantial policy reforms during the mid-1980s to early 1990s. The paper investigates the effect of reforms on the speed at which signals were transmitted to domestic markets and on the extent of price transmission. We find that Chile, Mexico, and Argentina are the only countries whose domestic commodity markets were integrated with world markets. For the remaining cases (Ghana, Madagascar, Indonesia, Egypt, and Colombia) in only a few country/commodity pairs is there some passthrough of world price changes. In terms of the effects of policy reforms, in the majority of the cases the hypothesis of a structural break following the reform year is rejected.Developing Countries, Policy Reforms, Price Transmission, Structural Break,

reflection of the technological improvements (and consequent cost reductions) that took place in the chemical fiber industry. After reaching parity with cotton prices in 1972, the ratio of polyester to cotton prices has increased at an average rate of 1 percent per year, implying that while cotton and polyester are priced at similar levels, polyester has made small pricing gains (see figure 14.1). The Global Cotton Balance Cotton is produced in many countries, but the Northern Hemisphere accounts for 90 percent of global output. More than two-thirds of the world's cotton is produced by developing countries. Between 1960 and 2001, global cotton output doubled-from 10.2 million to 20 million tons. Most of this growth came from China and India, which tripled and doubled their production, respectively, during this 40 year period. Other countries that significantly increased their share of cotton production were Turkey, Greece, and Pakistan. Some new entrants also contributed. Australia, which produced only 2,000 tons of cotton Cotton-by far the most common natural fiber of the 19th and 20th centuries-has been used as a raw material for clothing for at least 5,000 years. Its use expanded significantly after 1793, when the invention of the cotton gin introduced mechanical separation of lint from seed. The industrial revolution, which reduced the cost of producing textiles, accelerated cotton's progress. 1 Cotton's most important competitors are natural and synthetic man-made fibers such as rayon and polyester. 2 Although large-scale commercial production of man-made fibers did not begin until after World War II, experimentation was taking place as early as the late 1800s. In 1925, rayon, a natural manmade fiber produced from cellulose, accounted for 1.6 percent of the world's total fiber consumption. Twenty years later, this share had increased to 11.8 percent. The share of all man-made fibers in total fiber consumption reached 22 percent in 1960 and now stands at about 57 percent. As production of man-made fibers expanded, cotton's share fell (figure 14.1). Between 1960 and 2002, man-made fiber consumption grew at an annual rate of 4.7 percent, compared to just 1.8 percent for cotton. Synthetic (noncellulose) man-made fibers such as polyester and nylon have traded at prices compa-259

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.