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Reforms, WTO, arbitrage efficiency and integration between the China-US soybean markets

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  • Shengfei Han
  • Pei He
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    Abstract

    Purpose – The purpose of this paper is to develop a new approach to market analysis, and test how the China-US soybean market integration and arbitrage efficiency have changed across 1995/1-/2004/1 – a period covering strengthened government efforts to join WTO, and the institutional changes following WTO accession. Design/methodology/approach – The authors employ a regime-switching model with parametric, semi-parametric, and nonparametric measures to discern different market conditions in the sample period, as well as detect the structural shifts over time. Three types of data – expected prices, transaction costs, and trade flow – are used for the analysis. Findings – Results of the analysis indicate better integration over time, but deteriorating efficiency. The markets often departed from efficient arbitrage throughout the study periods, and counter-intuitively worsened after China's elimination of quota in 1999, and accession to WTO in 2001. One other interesting finding is that the state monopoly practice in soybean trading during the early periods produced seemingly competitive equilibrium price relationships. Originality/value – The paper is an original work that provides policy implications regarding the impacts and effectiveness of government policies on China's international soybean markets, the remaining bottlenecks, and the challenge to both Chinese soybean farmers and the US exporters. The method of identifying trade variation in a price model and the combination of parametric and semi-parametric analyses with comprehensive data further permits more accurate and intuitive interpretations previously unavailable. JEL classifications: F15, Q17, Q18, C10

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal China Agricultural Economic Review.

    Volume (Year): 4 (2012)
    Issue (Month): 3 (October)
    Pages: 318-341

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    Handle: RePEc:eme:caerpp:v:4:y:2012:i:3:p:318-341

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    Related research

    Keywords: Agricultural markets; Agricultural policy; Agricultural trade; Agriculture; China; Government policy; Integration; International trade; Prices;

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    1. G. P. Zanias, 1993. "Testing For Integration In European Community Agricultural Product Markets," Journal of Agricultural Economics, Wiley Blackwell, vol. 44(3), pages 418-427.
    2. Colin A. Carter & Neil A. Hamilton, 1989. "Wheat inputs and the law of one price," Agribusiness, John Wiley & Sons, Ltd., vol. 5(5), pages 489-496.
    3. Sandra Poncet, 2005. "A Fragmented China: Measure and Determinants of Chinese Domestic Market Disintegration," Review of International Economics, Wiley Blackwell, vol. 13(3), pages 409-430, 08.
    4. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    5. Spiller, Pablo T & Huang, Cliff J, 1986. "On the Extent of the Market: Wholesale Gasoline in the Northeastern United States," Journal of Industrial Economics, Wiley Blackwell, vol. 35(2), pages 131-45, December.
    6. Michael, Panos & Nobay, A Robert & Peel, David, 1994. "Purchasing power parity yet again: evidence from spatially separated commodity markets," Journal of International Money and Finance, Elsevier, vol. 13(6), pages 637-657, December.
    7. Christopher B. Barrett & Jau Rong Li, 2002. "Distinguishing between Equilibrium and Integration in Spatial Price Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 292-307.
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