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Regional and international market integration of a small open economy

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Abstract

This paper studies the relationship between a set of commodity prices in a small open economy like Uruguay and the corresponding international and regional prices. The empirical methodology used is the multivariate cointegration procedure based on maximum likelihood methods introduced by Johansen (1988) as well as estimations of half-life persistence indicators. In the case of cereals, the evidence suggests strong market integration between domestic and regional markets and, to some extent, also to international markets. Therefore, directly or indirectly, domestic prices are connected with the efficient price signal. Results for beef indicate strong market integration between the domestic market and the regional market, which is not so well connected with international markets. Thus, domestic price appears to be linked to a regional price that is not linked to the efficient price signal.

Suggested Citation

  • Sebastian Fossati & Fernando Lorenzo & Cesar M. Rodríguez, 2007. "Regional and international market integration of a small open economy," Journal of Applied Economics, Universidad del CEMA, vol. 10, pages 77-98, May.
    • Handle: RePEc:cem:jaecon:v:10:y:2007:n:1:p:77-98
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    File URL: https://ucema.edu.ar/publicaciones/download/volume10/fossati.pdf
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    Cited by:

    1. José César Cruz Junior & Daniel H D Capitani & Rodrigo L F Silveira, 2018. "The effect of Brazilian corn and soybean crop expansion on price and volatility transmission," Economics Bulletin, AccessEcon, vol. 38(4), pages 2273-2283.
    2. Lanfranco, Bruno A. & Ferraro, Bruno & Rostan, Francisco, 2015. "Beef Cattle in the MERCOSUR bloc: Integrated or Separate Markets?," 2015 Conference, August 9-14, 2015, Milan, Italy 212030, International Association of Agricultural Economists.
    3. Varela, Gonzalo & Aldaz-Carroll, Enrique & Iacovone, Leonardo, 2012. "Determinants of market integration and price transmission in Indonesia," Policy Research Working Paper Series 6098, The World Bank.
    4. Fabio L. Mattos & Rodrigo Lanna Franco da Silveira, 2018. "The Expansion of the Brazilian Winter Corn Crop and Its Impact on Price Transmission," IJFS, MDPI, vol. 6(2), pages 1-17, April.
    5. Varela, Gonzalo J., 2012. "Incomplete, slow, and asymmetric price transmission in ten product markets of Bolivia," Policy Research Working Paper Series 6291, The World Bank.

    More about this item

    Keywords

    commodity prices; law of one price; market integration; cointegration;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • F15 - International Economics - - Trade - - - Economic Integration
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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