Price Transmission In The Honduran Dairy Industry Under The Framework Of Cafta-Dr
This study aimed to investigate the price dynamics in the dairy industry of Honduras under the
framework of the Central America Free Trade Agreement (CAFTA-DR). A vector error correction model
(VECM) was modeled in order to determine whether there were differences in the prices before and after
integration of Honduras in the agreement. Impulse response functions (IRF) were used to model the price
adjustments caused by external shocks. Estimates from the VECM show that prices of quesillo and dry cheese
decreased after CAFTA-DR took effect, whereas those of fresh cheese increased. Impulse response functions
show that shocks in the prices of milk had the highest impact in the prices of the other dairy products. They also
show that fresh and dry cheese can function as substitutes of butter and vice versa.
Keywords: Market integration, price transmission, vector error correction model, CAFTA-DR.