Last week the Nepali government decided to ban export of wheat. This should have increased price of wheat. Incidentally, the price of wheat decreased by NRs 100 (about $1.5) per quintal. How is this possible? Is the free market, as Cowen argued, really working? See this as well. See Rodrik's take on this.
Oh ya, you might say! But, that's not the case. The response to a change in an economic indicator (mainly price) in the Nepali market is so slow that it takes weeks (at least two months) for the effect of price change to take affect consumer and investor behavior. Too much lags due to information asymmetries and coordination failures. The other reason is that there might be more supply than demand in the domestic market. But this is unlikely because before the ban wheat price was already rapidly rising.
Moreover, the ban would not itself substantially affect wheat trade because most of the wheat is exported to India, with whom Nepal enjoys a free border. With free border and official ban on exports, we will see more smuggling across the border. The net effect would probably, on average, be the same.
