Export Restrictions and Multiple Spatial Price Equilibria: Export Quotas for Wheat in Ukraine

Only few models exist which allow for a regime-dependent spatial price equilibrium. This paper focuses on the price insulating effects of export restrictions. Theory suggests that export restrictions lead to multiple spatial equilibria between the domestic and the world market price. Our analysis is unique in testing for linear versus non-linear cointegration within a smooth transition cointegration model. The application to the wheat export quota in Ukraine shows that the domestic wheat price was stabilized about 30% below the international wheat price during the two recent price booms. From a global point of view, the domestic wheat price in Ukraine would have increased to the same degree, if no country had engaged in price insulating behaviour 2006-2008 worldwide.