Acta Universitatis Danubius. Œconomica, Vol 13, No 4 (2017)

Abstract

This research paper seeks to empirically estimate and test reversibility or non-reversibility of the maize demand using the Tweeten – Quance and Wolffram – Houck methodology in South Africa with the use of annualized seasonal data for the periods 1970/71 to 2012/13. The test procedure seems to hold in South Africa in the case of demand for maize and the function is found to be irreversible. This is shown by the coefficients of both the increases and decreases in the price of maize, which are found to be non-identical. The results indicate that when maize prices increase by 1%, demand for maize falls by almost 12%, while decreases in maize price drive demand up by nearly 20%. The structural VAR on the other hand, which assumes that innovations are proliferated in the maize demand, maize prices, wheat prices and income, indicates that the SVAR is just –identified. These results reveal that ignoring such structural changes when conducting policy changes might be detrimental to the agricultural sector.