Who Has Price Leadership in Paprika Trade Between Korea and Japan? Evidence From Threshold Vector Autoregressive Model Approach

Korea is not only a top paprika exporter to Japan, but also Japan is the largest Korean paprika importer. In this situation, investigating who has price leadership contributes to fill a gap in previous literature. This study examines paprika price relationships between wholesale prices in Korea, import prices in Japan and wholesale prices in Japan using monthly data from 2007 to 2017. A threshold vector autoregressive model (TVAR) and Granger causality test are used to test the price leadership between Korean exporters and Japanese importers. Moreover, forecasted prices based on TVAR show that Korean exporter’s paprika prices will be lower than Japanese importer’s price in the future. The results show that Japanese importers provide price leadership to wholesalers in Korea and Japan. Our findings suggest that paprika farmers could benefit from policies designed to address the trade situation.