matched items between international prices and survey data. This matching is more limited than with domestic prices, i.e. the scaling term for these instruments is smaller than in the _CI_ and _PI_ in equation (1). The same applies to the _PI_ instrument as well. Moreover, international prices do not account for the price transmission from international to domestic markets, which is often limited. Thus international prices may not provide an ideal representation of the size of the price shock at the local level.

We propose another set of instruments to address both issues. The instruments are constructed using domestic prices of faraway states, following the same logic of Jacoby (2013) for changes in rice prices in Indian districts. The price data for the other Nigerian states should reflect exogenous international price changes, their transmission to the domestic market, and shifts in demand and supply in the large domestic market outside of the particular state. Including the prices of states which are further than 11 hours by vehicle from the state in question should relieve the concerns about the exogeneity of the instruments. Indeed it is plausible to assume that conflict intensity in state X may not have much impact in states that are on the other side of the country.<sup>20</sup> A possible remaining concern about the exogeneity of such instrument is in that specific states may be price makers in Nigeria for specific commodities. In particular if a state is a relatively large producer or consumer of a particular commodity, the conditions in that state may affect the prices of that commodity everywhere in the country. Two factors reduce the severity of this concern reinforcing the claim of exogeneity of the instrument. First, the high intra-national barriers to trading in Nigeria (Atkin and Donaldson, 2014) suggest that the domestic market is not well integrated. Second, the household survey data which we use in the analysis suggests that no state appears to be a key producer or consumer in any of the main commodity markets. The share of production value by an individual state in total domestic consumption is generally low and in no instance higher than 13% for any of the major commodities in the sample (Tables A3 and A4). However, for consumption value, Kaduna and Kano have larger shares. For robustness check we exclude these two states in the calculation of both consumption and production index. As shown below our results are still robust to this specification.

For each state _s,_ we compute the weighted average of prices of states located beyond a certain travel distance ( _D_ ) to the capital of state _s_ – weighted by the inverse of _D_ : where _pjmt_ is the price of _j_ in state _m_ at time _t_ for all the _Ns_ states whose capital is located beyond 11 hours travel distance. The eleven hours threshold is based on both the mean and median bilateral distance between the state capitals. We argue that this threshold excludes all the states that are close to the state’s geopolitical zone of influence. On average, about 10 states are included on the basis of this threshold. Differently from Jacoby (2013), we penalize far away state’s prices,

> 20 As stated earlier in section 2 on conflict background in Nigeria, conflict in Nigeria are largely regionalized and 11 hours travel time will takes you outside a particular region.

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