The Gains from Improved Market Efficiency: Trade Before and After the Transatlantic Telegraph
AbstractThis paper looks at the gains from improved market efficiency in long-distance grain trade in the second half of the 19th century when violations of the law of one price were reduced due to improved information transmission. Two markets, a major export centre, Chicago, and a major importer, Liverpool, are analyzed. We show that there was a law of one price equilibrium throughout the period but that markets displayed spells of demand- or supply-constrained trade when the law of one price was violated. Over time adjustments back to equilibrium, as measured by the half-life of a shock, become faster, violations of the law of one price become smaller and hence less persistent. There were also significant gains from improved market efficiency but that improvement took place after the information ‘regime’ shifted from pre-telegraphic communication to a regime with swift transmission of information in an era which developed a sophisticated commercial press and telegraphic communication. Improved market efficiency probably stimulated trade more than falling transport costs.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 06-19.
Length: 15 pages
Date of creation: Oct 2006
Date of revision:
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market integration; error correction; law of one price;
Other versions of this item:
- Ejrnæs, Mette & Persson, Karl Gunnar, 2010. "The gains from improved market efficiency: trade before and after the transatlantic telegraph," European Review of Economic History, Cambridge University Press, vol. 14(03), pages 361-381, December.
- F1 - International Economics - - Trade
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- N7 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-12 (All new papers)
- NEP-HIS-2006-11-12 (Business, Economic & Financial History)
- NEP-INT-2006-11-12 (International Trade)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Discussion Paper Series in Economics
12/2013, Department of Economics, Norwegian School of Economics.
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