Dynamic Econometric Modeling and Policy Analysis of the Libyan Wheat Market

Wheat plays a major role in food contribution, it is considered as a principal food grain in the daily life of the people in Libya. In addition, wheat is an important commodity to the Libyan economy in terms of its contribution to the country’s GDP, food requirement and farm income. The production of wheat in Libya, however, has been declining over the years. Consequently, it is vital to identify the economic and policy variables that influence its decline in the production in order to formulate appropriate policy measures. This study addresses the issue of government intervention on the Libyan wheat industry. The main objective of this study is to investigate the characteristics of the Libyan wheat market and analyse the impact of changes in government policies on wheat production, area, yield, consumption and imports. The Libyan wheat market model was estimated using the auto regressive distributed lag model (ARDL). The study used a time series data from 1970 to 2000. The model consists of area, yield, production, consumption and wheat imports equations. Annual models for the Libyan wheat market are developed based on market factors as well as government agricultural commodity programmes. The results from the wheat area equation indicate that the influence of relative price is significant in affecting acreage, and price-acreage relationship is positive. This means that if the price is enhanced, the production of wheat may improve considerably. The coefficient of agricultural loan is positive and statistically significant. This indicates that agricultural loan is also an important determinant for wheat area equation. The results from the wheat yield equation show that the real fertiliser price coefficient is negative and statistically significant. The implication of this finding in terms of policy formulation is that attention has to be paid to promote the wheat producers with low fertiliser prices to reach the desired level of yield. Technology is also found to be an important non-price factor affecting wheat yield. Income and prices are still important variables in determining the level of wheat consumption. Finally, the findings indicate that import demand for wheat is largely explained by per capita GDP. Simulations are also used to estimate the impacts of the three agricultural policies on wheat area, production, import, and consumption. The conclusions are drawn from a simulation experiment and from an analysis of policy. The results suggest that the model is an acceptable approximation of the Libyan wheat market.

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