Wheat market integration between Hungary and Germany
One of the most important targets of the Common Agricultural Policy (CAP) is to facilitate the spatial integration of agricultural markets within the individual member states as well as within the Community. On a spatially integrated market, price information should freely flow between member states. According to the European Commission, national Governments and their regulations should help to attain the goal of a common, integrated, and efficient market. For a small open economy, such as Hungary, market efficiency, and market information flow has at least two important political consequences. The first one is the transmission of prices by some actors of the chain either vertically or spatially. This issue is quite relevant for Hungary, considering the structure of its agri-food market. The second problem relates to the national agricultural support system completing the CAP in the New Member States (NMS). This paper focuses on the first topic, by testing for price transmission between German and Hungarian producer prices. Given the changing nature of market conditions over the past five years, a flexible Markov- Switching model for price transmission is proposed and estimated for the analysis of price transmission between Hungarian and German wheat.
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