Marketplaces as Focal Points of Structural Transformation: Understanding their Emergence, Persistence, and Decline Using Historical Maps and Satellite Imagery

Tillmann von Carnap

Small Research Grant

Smallholder farmers in rural areas of low-income countries are often poorly integrated into broader agricultural markets. It is widely believed that their participation in the market economy would pave the way to agricultural intensification, specialisation and development of institutional capacity to address farmers’ specific needs. While recent literature has found that low market participation and agricultural productivity is often correlated with remoteness due to poor physical access to existing markets and inefficient market signals, little research has analysed the emergence and disappearance of rural markets. This project focuses on how the appearance, persistence and decline of rural markets affects farmers welfare and wider structural transformation.

Employing a novel approach to detect markets, the project uses high-frequency satellite imagery to identify the current location of temporary markets in East Africa. These locations can then be compared to earlier mappings from the 1970s to understand patterns of market persistence and to explore the role of markets’ spatial distribution in explaining low levels of market integration. A structural model is employed to characterise the welfare implications of market existence and describe an ‘optimal spatial market structure’ in both a stylised and an actual geography. The model highlights locations where market emergence may be efficiently subsidised, particularly in the context of other complementary interventions like road construction or input subsidies.

This project sheds light on a key link in value chains, the evolution of market locations over time. While many governments have recently reinvigorated their agricultural development programmes, policies like rural road construction and input subsidies are often only roughly targeted geographically, partly because actionable information is missing. Identifying areas of relatively high and low market access would help implementing policies efficiently. Additionally, the project fills a critical data gap. The use of satellite imagery for mapping market location can be applied to a wide variety of research questions and the increasing frequency and quality of this data only serves to improve this method of data collection in the future.

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