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Road expansion and market integration in the Austrian low countries during the second half of the 18th century

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  • Erik Buyst
  • Stefan Dercon
  • Bjorn Van Campenhout

Abstract

We analyse the integration of wheat markets across 18 towns in the Austrian Low Countries during the second half of the 18th century and the relationship with the rapidly expanding paved road network in this period. We use a switching regression approach (threshold cointegration) to study long-run and short-run integration of these markets, using monthly wheat prices. We find that throughout this period, markets were spatially interconnected. However, price margins adjust only slowly to long-term levels in response to local shocks. We also find that transaction costs are relatively high. The results suggest a complex market with regular trade flow reversals and periods of unprofitable trade between key markets. It is widely accepted in Belgian historiography that the construction of a paved road network caused a substantial reduction in transaction costs. Our research, however, indicates that distance, fixed costs or links by rivers and canals mainly influenced transaction costs, not the expansion of a paved road network. Two factors can account for this. First, the toll structure on paved roads discouraged bulk trade. Secondly, new private investment in inter-city grain trade that may have led to cuts in the trading costs, typically appeared to be absent in this period. However, adjustment speeds in markets are significantly affected by the existence of paved roads. Better communication and faster transport due to the road network resulted in faster arbitrage.

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Paper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën in its series Center for Economic Studies - Discussion papers with number ces0010.

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Date of creation: Mar 2000
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Handle: RePEc:ete:ceswps:ces0010

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  1. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 862-79, August.
  2. Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-45, August.
  3. Goodwin, Barry K. & Grennes, Thomas J., 1998. "Tsarist Russia and the World Wheat Market," Explorations in Economic History, Elsevier, vol. 35(4), pages 405-430, October.
  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. 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.
  6. Param Silvapulle & Sisira Jayasuriya, 1994. "Testing For Philippines Rice Market Integration: A Multiple Cointegration Approach," Journal of Agricultural Economics, Wiley Blackwell, vol. 45(3), pages 369-380.
  7. Fafchamps, Marcel & Gavian, Sarah, 1996. "The Spatial Integration of Livestock Markets in Niger," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 5(3), pages 366-405, October.
  8. Scott Rozelle & Albert Park & Jikun Huang & Hehui Jin, 1997. "Liberalization and Rural Market Integration in China," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 635-642.
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Cited by:
  1. Jacks, David S., 2005. "Intra- and international commodity market integration in the Atlantic economy, 1800-1913," Explorations in Economic History, Elsevier, vol. 42(3), pages 381-413, July.

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  1. Historical Economic Geography

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