Asymmetric Price Transmission of World Prices to Kenyan Tea Market

Abstract The use of asymmetrical threshold cointegration test is adopted in this study to investigate whether any significant relationship or asymmetric adjustment exists in transmission of prices between the world tea market and domestic prices in Kenya. The empirical results obtained are as follows. First, we verify a close link between the Kenya’s tea price and its international counterparts under the current period of market liberalization. Second, empirical results demonstrate that in both long run and short run, the price transmission between world tea market and Kenyan domestic market are nonlinear and asymmetric, suggesting long run and short run dynamic inefficiencies and presence of transaction costs.JEL classification: C32, Q13, Q17