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Regional and international market integration of a small open economy

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Abstract

This paper studies the relationship between a set of commodity prices in a small open economy like Uruguay and the corresponding international and regional prices. The empirical methodology used is the multivariate cointegration procedure based on maximum likelihood methods introduced by Johansen (1988) as well as estimations of half-life persistence indicators. In the case of cereals, the evidence suggests strong market integration between domestic and regional markets and, to some extent, also to international markets. Therefore, directly or indirectly, domestic prices are connected with the efficient price signal. Results for beef indicate strong market integration between the domestic market and the regional market, which is not so well connected with international markets. Thus, domestic price appears to be linked to a regional price that is not linked to the efficient price signal.

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Bibliographic Info

Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): X (2007)
Issue (Month): (May)
Pages: 77-98

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Handle: RePEc:cem:jaecon:v:10:y:2007:n:1:p:77-98

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Keywords: commodity prices; law of one price; market integration; cointegration;

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Cited by:
  1. Varela, Gonzalo & Aldaz-Carroll, Enrique & Iacovone, Leonardo, 2012. "Determinants of market integration and price transmission in Indonesia," Policy Research Working Paper Series, The World Bank 6098, The World Bank.
  2. Varela, Gonzalo J., 2012. "Incomplete, slow, and asymmetric price transmission in ten product markets of Bolivia," Policy Research Working Paper Series, The World Bank 6291, The World Bank.

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