Cotton Hedging A Comparison across Developing and Developed Countries英文文献资料.docVIP

Modern Economy, 2011, 2, 654-666 doi:10.4236/me.2011.24073 Published Online September 2011 (http://www.SciRP.org/journal/me) Cotton Hedging: A Comparison across Developing and Developed Countries Qizhi Wang, Benaissa Chidmi Ag. Applied Economics, Texas Tech University, Lubbock, USA E-mail: Benaissa.chidmi@ Received April 26, 2011; revised June 15, 2011; accepted July 2, 2011 Abstract This paper uses the results of ordinary least squares, bivariate vector autoregressive, and error correction models to estimate the hedge ratios for cotton production across different countries and to determine whether New York Cotton Exchange futures prices can serve as a hedging tool for cotton producers. Models com- parison shows that the error correction model fits the data better. The results of the error correction model show that the spot prices and the NYCE futures prices are co-integrated in United States, Australia, and China, but not in Africa Franc Zone countries. In addition, for countries with higher market power, such as US and China, and countries without market distortions, such as Australia, the New York Cotton Exchange futures prices can serve as a hedging tool for cotton producers. In contrast, for less developed countries, such as Africa Franc Zone countries, and Pakistan, the NYCE futures prices cannot serve as hedging tool against the risks faced by cotton farmers. Keywords: Cotton, Hedge Ratio, Error Correction Model 1. Introduction much of the world’s cotton crosses international borders more than once before reaching its final consumers (MacDonald, 2000) [3]. Cotton is one of the major natural fibers. It accounts for around 40 percent of the world’s annual textile fiber pro- duction and serves as an engine of economic growth by providing income to millions of farmers in both deve- loped and developing countries worldwide. Between 1 and 2 million households produce cotton in West Africa, and up to 16