IDEAS home Printed from https://ideas.repec.org/a/sae/inrsre/v28y2005i3p302-329.html
   My bibliography  Save this article

Price Convergence on World Commodity Markets: Fact or Fiction?

Author

Listed:
  • James O. Bukenya

    (Department of Agribusiness, Alabama A&M University, Normal, ALjames.bukenya@email.aamu.edu)

  • Walter C. Labys

    (Regional Research Institute, West Virginia University, Morgantown, WVwlabys@wvu.edu)

Abstract

This article examines the degree to which commodity prices have converged on world commodity markets over recent decades. Ideally, increases in communications, central bank activities, and globalization would suggest that commodity prices in spatially dispersed markets should become similar over time. To measure convergence, correlation, regression, cointegration, and vector autoregressive methods are employed. Comparable geographic data were assembled for six commodities: coffee, cotton, wheat, lead, copper, and tin, covering the period 1930 through 1998. Overall, the empirical results do not support the convergence hypothesis but rather a pattern of fluctuating divergences.

Suggested Citation

  • James O. Bukenya & Walter C. Labys, 2005. "Price Convergence on World Commodity Markets: Fact or Fiction?," International Regional Science Review, , vol. 28(3), pages 302-329, July.
    • Handle: RePEc:sae:inrsre:v:28:y:2005:i:3:p:302-329
    DOI: 10.1177/0160017604267638
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0160017604267638
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0160017604267638?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Anonymous, 1950. "International Monetary Fund," International Organization, Cambridge University Press, vol. 4(3), pages 491-492, August.
    2. Labys, W. C. & Achouch, A. & Terraza, M., 1999. "Metal prices and the business cycle," Resources Policy, Elsevier, vol. 25(4), pages 229-238, December.
    3. Anonymous, 1950. "International Monetary Fund," International Organization, Cambridge University Press, vol. 4(2), pages 322-323, May.
    4. John Baffes, 1991. "Some Further Evidence on the Law of One Price: The Law of One Price Still Holds," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(4), pages 1264-1273.
    5. Stigler, George J & Sherwin, Robert A, 1985. "The Extent of the Market," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 555-585, October.
      • Stigler, George J. & Sherwin, Robert A., 1983. "The Extent of the Market," Working Papers 31, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    6. Barry K. Goodwin, 1992. "Multivariate Cointegration Tests and the Law of one Price: A Clarification and Correction," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 14(2), pages 337-338.
    7. Kenneth A. Froot & Michael Kim & Kenneth Rogoff, 2019. "The Law of One Price Over 700 Years," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 1-35, May.
    8. Frank Asche & Helge Bremnes & Cathy R. Wessells, 1999. "Product Aggregation, Market Integration, and Relationships between Prices: An Application to World Salmon Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 568-581.
    9. Karl Gunnar Persson, "undated". "Integration and Deregulation of European Grain Markets, 1500-1900," Discussion Papers 94-07, University of Copenhagen. Department of Economics.
    10. Pier Giorgio Ardeni, 1989. "Does the Law of One Price Really Hold for Commodity Prices?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(3), pages 661-669.
    11. Francesco Goletti & Suresh Babu, 1994. "Market liberalization and integration of maize markets in Malawi," Agricultural Economics, International Association of Agricultural Economists, vol. 11(2-3), pages 311-324, December.
    12. Richard J. Sexton & Catherine L. Kling & Hoy F. Carman, 1991. "Market Integration, Efficiency of Arbitrage, and Imperfect Competition: Methodology and Application to U.S. Celery," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 568-580.
    13. Bruce L. Gardner & Karen M. Brooks, 1994. "Food Prices and Market Integration in Russia: 1992–93," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(3), pages 641-646.
    14. Southworth, V. Roy & Jones, William O. & Pearson, Scott R., 1979. "Food Crop Marketing in Atebubu, District, Ghana," Food Research Institute Studies, Stanford University, Food Research Institute, vol. 17(2), pages 1-40.
    15. Goletti, Francesco & Babu, Suresh, 1994. "Market liberalization and integration of maize markets in Malawi," Agricultural Economics, Blackwell, vol. 11(2-3), pages 311-324, December.
    16. Anonymous, 1950. "International Monetary Fund," International Organization, Cambridge University Press, vol. 4(4), pages 678-680, November.
    17. Bernard, Andrew B & Durlauf, Steven N, 1995. "Convergence in International Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 97-108, April-Jun.
    18. John Baffes & Mohamed Ihsan Ajwad, 2001. "Identifying price linkages: a review of the literature and an application to the world market of cotton," Applied Economics, Taylor & Francis Journals, vol. 33(15), pages 1927-1941.
    19. Stefan Dercon, 1995. "On market integration and liberalisation: Method and application to Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 32(1), pages 112-143.
    20. Dragan Miljkovic, 1999. "The Law of One Price in International Trade: A Critical Review," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 21(1), pages 126-139.
    21. Osterwald-Lenum, Michael, 1992. "A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 461-472, August.
    22. 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, September.
    23. Mundlak, Yair & Larson, Donald F, 1992. "On the Transmission of World Agricultural Prices," The World Bank Economic Review, World Bank, vol. 6(3), pages 399-422, September.
    24. Martin Ravallion, 1986. "Testing Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(1), pages 102-109.
    25. Barry K. Goodwin & Thomas J. Grennes & Michael K. Wohlgenant, 1990. "A Revised Test of the Law of One Price Using Rational Price Expectations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(3), pages 682-693.
    26. Bob Baulch, 1997. "Transfer Costs, Spatial Arbitrage, and Testing for Food Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 477-487.
    27. Merle D. Faminow & Bruce L. Benson, 1990. "Integration of Spatial Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(1), pages 49-62.
    28. Anonymous, 1950. "International Monetary Fund," International Organization, Cambridge University Press, vol. 4(1), pages 132-133, February.
    29. Pindyck, Robert S & Rotemberg, Julio J, 1990. "The Excess Co-movement of Commodity Prices," Economic Journal, Royal Economic Society, vol. 100(403), pages 1173-1189, December.
    30. Mario Lefebvre & Stephen S. Poloz, 1996. "The Commodity-Price Cycle and Regional Economic Performance in Canada," Staff Working Papers 96-12, Bank of Canada.
    31. Barry K. Goodwin, 1992. "Multivariate Cointegration Tests and the Law of One Price in International Wheat Markets," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 14(1), pages 117-124.
    32. Uma J. Lele, 1967. "Market Integration: A Study of Sorghum Prices in Western India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 49(1_Part_I), pages 147-159.
    33. Walter Labys & Yves Perrin, 1976. "Multivariate analysis of price aspects of commodity stabilization," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 112(3), pages 556-564, September.
    34. Fafchamps, Marcel & Gavian, Sarah, 1996. "The Spatial Integration of Livestock Markets in Niger," Journal of African Economies, Centre for the Study of African Economies, vol. 5(3), pages 366-405, October.
    35. Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-948, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zoltán Bakucs & Štefan Bojnec & Imre Fertő, 2015. "Spatial Product Market Integration between Two Small, Open Neighbouring Economies," Agribusiness, John Wiley & Sons, Ltd., vol. 31(2), pages 171-187, April.
    2. Kateryna Goychuk & William H. Meyers, 2014. "Black Sea and World Wheat Market Price Integration Analysis," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 62(2), pages 245-261, June.
    3. Degye Goshu, 2016. "The Dynamics of Food Price Convergence in Ethiopia," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 24(1), April.
    4. Barbaglia, Luca & Wilms, Ines & Croux, Christophe, 2016. "Commodity dynamics: A sparse multi-class approach," Energy Economics, Elsevier, vol. 60(C), pages 62-72.
    5. Jamora, Nelissa & Cramon-Taubadel, Stephan von, 2012. "What world price?," GlobalFood Discussion Papers 142241, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Walter Labys, 2005. "Commodity Price Fluctuations: A Century of Analysis," Working Papers Working Paper 2005-01, Regional Research Institute, West Virginia University.
    2. repec:rri:wpaper:200501 is not listed on IDEAS
    3. Baffes, John & Ajwad, Mohamed I., 1998. "Detecting price links in the world cotton market," Policy Research Working Paper Series 1944, The World Bank.
    4. Rahman, Mohammad Chhiddikur, 2020. "Welfare Impact of Asymmetric Price Transmission on Bangladesh Rice Consumers," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 242248, July.
    5. Rahman, Mohammad Chhiddikur, 2018. "Welfare Impact of Asymmetric Price Transmission on Bangladesh Rice Consumers," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 251114, July.
    6. Giulia LISTORTI, 2008. "Price Transmission Mechanisms: a Policy Investigation of International Wheat Markets," Working Papers 318, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    7. Sundaramoorthy, C. & Mathur, V.C. & Jha, G.K., 2014. "Price Transmission along the Cotton Value Chain," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 27(2).
    8. Padilla-Bernal, Luz E. & Thilmany, Dawn D., 2003. "Price Relationships Among North American Fresh Tomato Markets: A Comparison Between Mexican And U.S. Markets," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 5(3), pages 1-19.
    9. Madhusudan Ghosh, 2010. "Spatial Price Linkages in Regional Food Grain Markets in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 4(4), pages 495-516, November.
    10. Muhammad Sarwar Zahid & Abdul Qayyum & Wasim Shahid Malik, 2007. "Dynamics of Wheat Market Integration in Northern Punjab, Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(4), pages 817-830.
    11. Florine Livat, 2007. "Mesure des interactions de prix : une analyse des modalités de substitution parmi sept vins de Bordeaux," Économie et Prévision, Programme National Persée, vol. 180(4), pages 127-145.
    12. Kadir Eryigit & Suleyman Karaman, 2011. "Testing for spatial market integration and law of one price in Turkish wheat markets," Quality & Quantity: International Journal of Methodology, Springer, vol. 45(6), pages 1519-1530, October.
    13. Abdulai, Awudu, 2000. "Spatial price transmission and asymmetry in the Ghanaian maize market," Journal of Development Economics, Elsevier, vol. 63(2), pages 327-349, December.
    14. Yu JIANG & Yu WANG, 2013. "Is China's domestic agricultural market influenced by price fluctuations of the world agricultural commodities in the short-run?," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 59(12), pages 578-589.
    15. Galang, Ivory Myka R., 2014. "A Spatial Integration Analysis of the Regional Fertilizer Markets in the Philippines," Discussion Papers DP 2014-36, Philippine Institute for Development Studies.
    16. Dragan Miljkovic, 2009. "US and Canadian livestock prices: market integration and trade dependence," Applied Economics, Taylor & Francis Journals, vol. 41(2), pages 183-193.
    17. Elena Claire Ricci & Massimo Peri & Lucia Baldi, 2019. "The Effects of Agricultural Price Instability on Vertical Price Transmission: A Study of the Wheat Chain in Italy," Agriculture, MDPI, vol. 9(2), pages 1-14, February.
    18. Padilla-Bernal, Luz E. & Thilmany, Dawn D. & Loureiro, Maria L., 2003. "An Empirical Analysis of Market Integration and Efficiency for U.S. Fresh Tomato Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(3), pages 1-16, December.
    19. John Baffes & Bruce Gardner, 2003. "The transmission of world commodity prices to domestic markets under policy reforms in developing countries," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 6(3), pages 159-180.
    20. Stephan von Cramon-Taubadel, 2017. "The analysis of market integration and price transmission – results and implications in an African context," Agrekon, Taylor & Francis Journals, vol. 56(2), pages 83-96, April.
    21. Van Campenhout, Bjorn, 2007. "Modelling trends in food market integration: Method and an application to Tanzanian maize markets," Food Policy, Elsevier, vol. 32(1), pages 112-127, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:inrsre:v:28:y:2005:i:3:p:302-329. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.