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Distinguishing Between Equilibrium And Integration In Markets Analysis

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  • Li, Jau-Rong
  • Barrett, Christopher B.

Abstract

This paper introduces a new market analysis methodology based on maximum likelihood estimation of a mixture distribution model incorporating price, transfer cost, and trade flow data. Not only does this method obviate statistical problems associated with conventional price analysis methods, it also permits differentiation between market integration and competitive market equilibrium. The model generates estimates of the frequency of alternative regimes, combinations of which provide useful, intuitive measures of intermarket tradability, competitive market equilibrium, perfect integration, segmented equilibrium, and segmented disequilibrium. An application to trade in soybean meal among Pacific Rim economies demonstrates the usefulness of the method.

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File URL: http://purl.umn.edu/14607
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Bibliographic Info

Paper provided by International Agricultural Trade Research Consortium in its series Working Papers with number 14607.

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Date of creation: 1999
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Handle: RePEc:ags:iatrwp:14607

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Related research

Keywords: international trade; law of one price; market integration; spatial equilibrium; International Relations/Trade;

References

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  1. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  2. McNew, Kevin & Fackler, Paul L., 1997. "Testing Market Equilibrium: Is Cointegration Informative?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 22(02), December.
  3. Kling, Catherine L. & Sexton, Richard & Carman, Hoy, 1991. "Market Integration, Efficiency of Arbitrage, and Imperfect Competition: Methodology and Application to U.S. Celery," Staff General Research Papers 1609, Iowa State University, Department of Economics.
  4. 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.
  5. Fackler, Paul L. & Goodwin, Barry K., 2001. "Spatial price analysis," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 17, pages 971-1024 Elsevier.
  6. Christopher B. Barrett, 1996. "Market Analysis Methods: Are Our Enriched Toolkits Well Suited to Enlivened Markets?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 825-829.
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Citations

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Cited by:
  1. Javier Escobal & Arturo Vásquez, 2005. "Market integration for agricultural output markets in Peru: the role of public infrastructure," Urban/Regional 0507003, EconWPA.
  2. Kaitibie, Simeon & Nganje, William E. & Brorsen, B. Wade & Epplin, Francis M., 2003. "Optimal Grazing Pressure Under Output Price And Production Uncertainty With Alternative Functional Forms," 2003 Annual meeting, July 27-30, Montreal, Canada 22020, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Moser, Christine M. & Barrett, Christopher B. & Minten, Bart, 2005. "Missed opportunities and missing markets: Spatio-temporal arbitrage of rice in Madagascar," 2005 Annual meeting, July 24-27, Providence, RI 19338, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  4. Harvey, David R., 2004. "European Perspective on Market Integration: Lessons from NAFTA," 2004 NAAMIC Workshop I: North American Agrifood Market Integration: Current Situtation and Perspectives 163852, North American Agrifood Market Integration Consortium (NAAMIC).
  5. Bekkerman, Anton & Goodwin, Barry K. & Piggott, Nicholas E., 2009. "Spatial Analysis of Market Linkages in North Carolina Using Threshold Autoregression Models with Variable Transaction Costs," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49282, Agricultural and Applied Economics Association.
  6. Escobal, Javier, 2005. "The Role of Public Infraestructure in Market Development in Rural Peru," MPRA Paper 727, University Library of Munich, Germany.
  7. Vollrath, Thomas L., 2003. "North American Agricultural Market Integration And Its Impact On The Food And Fiber System," Agricultural Information Bulletins 33639, United States Department of Agriculture, Economic Research Service.
  8. Fausti, Scott W. & Diersen, Matthew A., 2004. "The Voluntary Reporting System's Ability to Provide Price Transparency in the Cash Market for Dressed Steers: Evidence from South Dakota," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(03), December.
  9. Barrett, Christopher B. & Li, Jau-Rong & Bailey, DeeVon, 1999. "Factor and Product Market Tradability and Equilibrium in Pacific Rim Pork Industries," Working Papers 127696, Cornell University, Department of Applied Economics and Management.
  10. Harvey, David R., 2004. "European Perspective On Market Integration," North American Agrifood Integration: Situation and Perspectives, May 2004, Cancun, Mexico 16734, Farm Foundation.
  11. Raper, Kellie Curry & Thornsbury, Suzanne & Aguilar, Cristobal, 2009. "Regional Wholesale Price Relationships in the Presence of Counter-Seasonal Imports," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(01), April.

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