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Analysing changes in market integration through a cross-sectional test for the law of one price

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  • Konstantin Gluschenko

    (Institute of Economics and Industrial Engineering, Siberian Branch of the Russian Academy of Sciences, Russia)

Abstract

This paper presents a theoretical argument that the relationship between price differences and per capita income differences across locations can be used as a cross-sectional test for the law of one price. Since the relationship should be statistically insignificant or very weak in an integrated economy, its strength can measure the extent of goods market integration. A sequence of cross-sectional estimations for a number of points in time provides the temporal pattern of integration, so enabling changes in integration to be traced. The basic equation may be augmented by additional variables representing potential culprits behind market segmentation so as to estimate their impeding impact to integration. This methodology is empirically verified by applying it to the Russian domestic market. It is found that integration of Russia's goods market tends to improve with time; a number of culprits behind market segmentation are identified. Copyright © 2004 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.237
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 9 (2004)
Issue (Month): 2 ()
Pages: 135-149

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Handle: RePEc:ijf:ijfiec:v:9:y:2004:i:2:p:135-149

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Citations

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Cited by:
  1. Konstantin Gluschenko, 2008. "Goods Market Integration in Russia during the Economic Upturn," William Davidson Institute Working Papers Series wp921, William Davidson Institute at the University of Michigan.
  2. Глущенко К.П., 2007. "Влияние Организованной Преступности На Региональную Дифференциацию Цен," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 43(2), апреÐ.
  3. Konstantin Gluschenko, 2005. "Inter-Regional Price Convergence and Market Integration in Russia," International Advances in Economic Research, Springer, vol. 11(4), pages 483-483, November.
  4. Konstantin Gluschenko, 2004. "The Evolution of Cross-Region Price Distribution in Russia," William Davidson Institute Working Papers Series 2004-716, William Davidson Institute at the University of Michigan.
  5. Gluschenko, Konstantin, 2006. "Russia’s common market takes shape: Price convergence and market integration among Russian regions," BOFIT Discussion Papers 7/2006, Bank of Finland, Institute for Economies in Transition.
  6. Akhmedjonov, Alisher & Lau, Chi Keung, 2012. "Do energy prices converge across Russian regions?," Economic Modelling, Elsevier, vol. 29(5), pages 1623-1631.
  7. Konstantin Gluschenko, 2003. "Market integration in Russia during the transformation years," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(3), pages 411-434, 09.
  8. Konstantin Gluschenko & Darya Karchevskaya (Kulighina), 2010. "Assessing a feasible degree of product market integration: a pilot analysis," Journal of Economic Studies, Emerald Group Publishing, vol. 37(4), pages 419-437, September.

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