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Testing for Food Market Integration: A Study of the Vietnamese Paddy Market

  • Trung, Le Dang
  • Tam, Tran Ngo Minh
  • Baulch, Bob
  • Hansen, Henrik

This study examines whether there is spatial integration between and within paddy markets in the North and South of Vietnam. The empirical model developed uses estimates of transfer costs to generalize Ravallion’s model of spatial market integration to allow for threshold effects. A sequential testing strategy is used to test for market segmentation, the number of thresholds, long-run integration, informational efficiency, and the ‘Law’ of One Price within an error-correction framework. We find no threshold effects and weak evidence of paddy market integration between northern and southern Vietnam. There is, however, evidence of both threshold effects and stronger market integration within the Red and Mekong River deltas. Whenever price spreads exceeds their thresholds at least 60% percent of price changes are transmitted between regional markets within a month. Nonetheless, the instantaneous version of the ‘Law’ of One Price only holds for a few regimes and market pairs. These results suggest that national level policies cannot be relied upon to stabilize or support paddy prices in Vietnam. Instead, policies need to be designed with the specific production, consumption and marketing characteristics of northern and southern Vietnam in mind.

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File URL: http://purl.umn.edu/7974
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Paper provided by Agricultural Economics Society in its series 81st Annual Conference, April 2-4, 2007, Reading University with number 7974.

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Date of creation: 2007
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Handle: RePEc:ags:aes007:7974
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  1. Richardson, J. David, 1978. "Some empirical evidence on commodity arbitrage and the law of one price," Journal of International Economics, Elsevier, vol. 8(2), pages 341-351, May.
  2. Goodwin, Barry K. & Piggott, Nicholas E., 1999. "Spatial Market Integration In The Presence Of Threshold Effects," 1999 Annual meeting, August 8-11, Nashville, TN 21489, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Dwayne Benjamin & Loren Brandt, 2002. "Agriculture and Income Distribution in Rural Vietnam under Economic Reforms: A Tale of Two Regions," Working Papers benjamin-02-01, University of Toronto, Department of Economics.
  4. Sarno, Lucio & Taylor, Mark P. & Chowdhury, Ibrahim, 2004. "Nonlinear dynamics in deviations from the law of one price: a broad-based empirical study," Journal of International Money and Finance, Elsevier, vol. 23(1), pages 1-25, February.
  5. 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.
  6. Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-48, December.
  7. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
  8. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  9. 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.
  10. Christopher F Baum & Richard Sperling, 2000. "DFGLS: Stata module to compute Dickey-Fuller/GLS unit root test," Statistical Software Components S410001, Boston College Department of Economics, revised 16 Dec 2001.
  11. Minot, Nicholas & Goletti, Francesco, 2000. "Rice market liberalization and poverty in Viet Nam:," Research reports 114, International Food Policy Research Institute (IFPRI).
  12. Meyer, Jochen, 2003. "Measuring Market Integration In The Presence Of Transaction Costs - A Threshold Vector Error Correction Approach," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25869, International Association of Agricultural Economists.
  13. Hansen, Bruce E. & Seo, Byeongseon, 2002. "Testing for two-regime threshold cointegration in vector error-correction models," Journal of Econometrics, Elsevier, vol. 110(2), pages 293-318, October.
  14. Jones, William O., 1968. "The Structure of Staple Food Marketing in Nigeria as Revealed by Price Analysis," Food Research Institute Studies, Stanford University, Food Research Institute, issue 02.
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