Supply Response Behavior of Nepalese Rice Producers: An Error Correction Model

An Error Correction Model

Abstract

An attempt was made to estimate the supply response of rice in Nepal by
using an Error Correction Model. The short-run elasticity was negative
while it was positive in the long run. Higher long-run elasticities are
attributable to the conviction that farmers respond when they are certain that
price changes are permanent. Further, the response to the Indian price is
likely to decrease with the trade liberalization. Higher response to the supply
of improved seed than to the prices implies that the subsistence farmers are
less responsive to the changes in market prices than to the improvement of
non-price factors.