Estimating the link between trade uncertainty, pandemic uncertainty and food price stability in Togo: New evidence for an asymmetric analysis

• Published date: 01 May 2023
• Author: Kuamvi Sodji
• Date: 01 May 2023
• DOI: http://doi.org/10.1111/rode.12963

REGULAR ARTICLE

Estimating the link between trade uncertainty,

pandemic uncertainty and food price stability

in Togo: New evidence for an asymmetric

analysis

Kuamvi Sodji

Faculty of Economics and Management,

University of Lome, Lome, Togo

Correspondence

Kuamvi Sodji, Department of Economics,

Faculty of Economics and Management,

University of Lome, Lome 01BP1515

Togo.

Email: karlsodji12@gmail.com

Abstract

Globally, the outbreak of COVID-19 and the associated

containment measures adopted by governments are

causing disruptions that sow uncertainty in several sec-

tors of the economy. In this study, we explore the

asymmetric impact of pandemic uncertainty and global

trade policy on food prices in Togo. The study uses a

nonlinear autoregressive distributive lag (NARDL)

framework and causality tests for the period 2000 M1–

2021 M5. The results show that the different types of

uncertainty affect food price stability in the short and

long run, but the shock is more pronounced in the case

of pandemic uncertainty, as they are sudden and dis-

rupt food price stability. The main findings remain sig-

nificant when we use various alternative methods and

estimation techniques. However, our results suggest

that the Togolese food market is facing pandemic

uncertainty and trade policy, which should lead

policymakers and stakeholders to take corrective mea-

sures to control losses.

KEYWORDS

asymmetric effects, COVID-19, food prices, NARDL, pandemic

uncertainty, trade policy uncertainty

JEL CLASSIFICATION

D81, D82, E31

Received: 21 March 2022 Revised: 29 September 2022 Accepted: 14 November 2022

DOI: 10.1111/rode.12963

Rev Dev Econ. 2023;27:1113–1134. wileyonlinelibrary.com/journal/rode © 2022 John Wiley & Sons Ltd. 1113

1|INTRODUCTION

Owing to its unprecedented, unique, and global nature, the COVID-19 crisis has had and will

continue to have an impact on many countries and regions. In addition to direct health impacts,

the pandemic and associated containment measures adopted by governments have had effects

on loss of income and jobs (Barrett, 2020). However, one of the current economic shocks experi-

enced by households worldwide is that of the COVID-19 pandemic, owing to business disrup-

tions and closures caused by social distancing measures put in place to limit the spread of the

virus (Martin et al., 2020). Typically, households are often subjected to declining incomes and

reductions in spending on food consumption goods (Genoni, 2012).

Indeed, most countries have imposed trade restrictions to ensure a stable supply of domestic

agricultural products during and after the COVID-19 pandemic (Udmale et al., 2020); still other

countries have taken security measures by closing borders, markets, and conducting population

confinements. For example, Thailand and Sudan have proposed temporary measures to protect

agricultural products (Yao et al., 2020). While these policies may serve national interests in the

short term, they reduce supply in the global commodity market, putting upward pressure on

food products (Laborde et al., 2020).

The containment and social distancing measures associated with the pandemic are widely

seen as having potentially severe negative effects on incomes owing to reduced economic activ-

ity (Barrett, 2020). In most countries, the main policy agenda is still to ensure food security. The

same is true for Togo, where any food crisis is likely to exacerbate a human catastrophe. The

effects of such turmoil could have many economic, social and psychological repercussions. In

Togo, food represents a significant portion of the total consumer budget, both in rural and

urban areas. Moreover, with the share of food expenditure so high, any significant increase in

food prices would certainly have consequences for national price stability and the general level

of inflation.

There is no doubt that trade constraints, pandemic crises, and associated economic down-

turns play an important role in food price stability, but unfortunately one of the limitations of

previous studies is that none has explored the impact of pandemic and trade policy uncertainty

on food prices in a developing country like Togo. This implies that uncertainty has implications

for real economic activity as well as for commodity markets. It should be noted that the nature

of commodity markets could further amplify uncertainty in key food markets during the pan-

demic, which could exacerbate market volatility (Shaikh & Huynh, 2021). In general, large fluc-

tuations in commodities can induce profound economic and societal problems, which in turn

increase policy uncertainty (Figure 1).

To this end, we focus on uncertainty induced by pandemics and trade policy through its

impact on the Togolese product market. Uncertainty shocks can have substantial consequences

on the Togolese economy given the country's high external dependence that makes its food

commodities more sensitive. We therefore hypothesize that pandemic or trade uncertainty has

an impact on food prices, but it is not clear whether this effect is positive or negative. The moti-

vation for this hypothesis has its roots in the existing literature, which indicates that uncertainty

can affect commodity prices differently (Hailemariam et al., 2019). Uncertainty has a far-

reaching effect on the real economy. Similarly, due to its heavy dependence on international

trade, any uncertain event can affect Togo's economy. It is therefore important to critically

examine the impact of pandemic and trade policy uncertainty on food prices in Togo.

Food prices can react asymmetrically to pandemics or trade situations. Indeed, severe health

or trade shocks (large changes in uncertainty levels) may affect prices differently than small

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