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Testing for food market integration revisited

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  • Bob Baulch

Abstract

This article considers the statistical performance of four commonly used econometric tests for market integration: the Law of One Price, the Ravallion Model, cointegration and Granger causality. A spatial price equilibrium (SPE) model, that is subject to both production shocks and general price inflation, and mimics many of the key characteristics of integrated food markets, is constructed. The model is used to generate food price time series of lengths that are typical of the short sample sizes available in most developing countries, for both instantaneously integrated and independent markets. A series of Monte Carlo experiments on these artificial food price time series are performed, which show that all four of the conventional tests for market integration are statistically flawed.

Suggested Citation

  • Bob Baulch, 1997. "Testing for food market integration revisited," Journal of Development Studies, Taylor & Francis Journals, vol. 33(4), pages 512-534.
  • Handle: RePEc:taf:jdevst:v:33:y:1997:i:4:p:512-534
    DOI: 10.1080/00220389708422479
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    References listed on IDEAS

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    1. Palaskas, Theodosios B. & Varangis, Panos N., 1991. "Is there excess co-movement of primary commodity prices? A co-integration test," Policy Research Working Paper Series 758, The World Bank.
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    Cited by:

    1. Christian Growitsch & Marcus Stronzik & Rabindra Nepal, 2015. "Price Convergence and Information Efficiency in German Natural Gas Markets," German Economic Review, Verein für Socialpolitik, vol. 16(1), pages 87-103, February.
    2. Minot, Nicholas, 2011. "Transmission of world food price changes to markets in Sub-Saharan Africa:," IFPRI discussion papers 1059, International Food Policy Research Institute (IFPRI).
    3. Goundan, Anatole & Tankari, Mahamadou Roufahi, 2016. "A dynamic spatial model of agricultural price transmission: Evidence from the Niger millet market:," IFPRI discussion papers 1536, International Food Policy Research Institute (IFPRI).
    4. 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).
    5. Wouter Zant, 2013. "How Is the Liberalization of Food Markets Progressing? Market Integration and Transaction Costs in Subsistence Economies," World Bank Economic Review, World Bank Group, vol. 27(1), pages 28-54.
    6. Baffes, John & Ajwad, Mohamed I., 1998. "Detecting price links in the world cotton market," Policy Research Working Paper Series 1944, The World Bank.
    7. Zant, Wouter, 2010. "Market Integration with Transaction Costs in Developing Country Staple Food Markets: the Case of the Malawi Maize market," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 95777, African Association of Agricultural Economists (AAAE).
    8. P. J. Dawson & P. K. Dey, 2002. "Testing for the law of one price: rice market integration in Bangladesh," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(4), pages 473-484.
    9. repec:gam:jagris:v:9:y:2019:i:2:p:36-:d:206164 is not listed on IDEAS
    10. Ebata, Ayako & Velasco, Pamela & von Cramon-Taubadel, Stephan, 2015. "Distance to market and farm-gate prices of staple beans in rural Nicaragua," GlobalFood Discussion Papers 197540, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    11. repec:ipg:wpaper:2014-502 is not listed on IDEAS
    12. Mayaka, Venny K., 2013. "An Assessment Of Dry Beans Market Integration In Selected Markets In Kenya," Research Theses 157599, Collaborative Masters Program in Agricultural and Applied Economics.
    13. Essam, Timothy M., 2012. "Using Satellite-Based Remote Sensing Data to Assess Millet Price Regimes and Market Performance in Niger," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124654, Agricultural and Applied Economics Association.
    14. Gabre-Madhin, Eleni Z., 1999. "Transaction costs and market institutions," MTID discussion papers 31, International Food Policy Research Institute (IFPRI).
    15. Jeni Klugman, 2007. "Ethiopia : Explaining Food Price Inflation," World Bank Other Operational Studies 19539, The World Bank.
    16. Ebata, Ayako & Pacheco, Pamela Alejandra & Cramon-Taubadel, Stephan von, 2015. "Distance to market and farm-gate prices of staple beans in rural Nicaragua," 2015 Conference, August 9-14, 2015, Milan, Italy 211582, International Association of Agricultural Economists.
    17. Tione, Sarah Ephridah, 2011. "Analysis of Effectiveness of Modern Information and Communication Technologies on Maize Marketing Efficiency in Lilongwe and Dedza Districts and Selected Markets of Malawi," Research Theses 198525, Collaborative Masters Program in Agricultural and Applied Economics.

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