Are Food Prices Affected by Crude Oil Price: Causality Investigation (original) (raw)

Abstract

In the last couple of years food prices have registered significant and more and less sustainable gains. Professional debate therefore has risen about this development and many of researchers seeing that food prices are majorly driven by crude oil prices as an input of production of the agriculture commodities. Others are seeing that food prices are driven by the rising demand of food commodities. The aim of this paper is to examine the long run relationship between crude oil and food prices and test whether there is an existing causality. Using the pairwise Granger causality and causality based on VECM, the results of investigation suggest that there is a long run relationship between crude oil price and prices of examined food commodities and the direction of long run causality is running from crude oil price to food prices.

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