Speculative Price Bubbles in the Rice Market and the 1974 Bangladesh Famine

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This paper investigates the role played by speculative price bubbles in destabilizing food markets in Bangladesh during the 1974 famine. The hypothesis of speculative price bubbles in the rice market is tested using weekly price data. These tests are based on a theoretical model of storable food markets in which agents exhibit rational expectations. It is shown that such markets are susceptible to destabilizing trends by self-fulfilling expectations. While "explosive price bubbles" have received extensive attention in macroeconomics, they have not been used in development economics to explain famines. Amartya Sen has hypothesized that speculative forces are a possible source of instability in the food market. Our empirical tests based on techniques from the recent literature on price bubbles lend some credence to the hypothesis that excessive speculation may have produced price bubbles in the rice market which directly contributed to the Bangladesh famine in 1974.








Charles Maxwell Becker

Research Professor of Economics

Charles Becker is interested in exploring the economies of such countries as Kazakhstan, India, sub-Saharan Africa, Russia, and Kyrgyzstan. His research has focused on economic demography, social security system forecasting, CGE modeling, mortality and disability risk, determinants of health care utilization, computable general equilibrium simulation modeling, and urban economics. His on-going projects involve assessing infant mortality rates, poverty in developing countries, accidental deaths in middle-income countries, and the performance of minority students in Economics doctoral programs. He recently worked with Irina Merkuryeva on a project investigating, “Disability Risk and Miraculous Recoveries in Russia,” and with Rebecca Anthopolos on, “Gobal Infant Mortality: Initial results from a cross-country infant mortality comparison project.” He also collaborated with Grigory Marchenko, Sabit Khakimzhanov, Ai-Gul Seitenova, and Vladimir Ivliev on a project entitled, “Social Secutiry Reform in Transition Economies: Lessons from Kazakhstan,” and with Amitava Krishna Dutt and Jaime Ros on, “Urbanization and Rural-Urban Migration.”

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