Institutional Impact of GATT: An Examination of Market Integration and Efficiency in the World Beef and Wheat Market under the GATT Regime

Studies on the General Agreement on Tariffs and Trade (GATT) are abundant in the literature. But most researchers have examined GATT's impact on economic activities with scant or no attention given to its impact on institutions such as market integration and efficiency. To the latter issues, this paper is addressed. Even prior to the signing of the final act, questions were raised on possible maneuvers that might frustrate its intent, that of ushering in an era of true liberalization in agricultural trade. This study finds consistent evidence that GATT reforms promoted market integration and improved market efficiency. Decomposition of price variability into its various sources shows that the transmission of shocks becomes more widespread across markets and is much faster under the GATT regime. This, in turn, suggests improved market integration. The share of unexpected shocks originating from other prices in the variability of U.S. beef prices increased under GATT from 15 to 30 percent, 14 to 46 percent for Australian beef prices, 20 to 43 percent for U.S. wheat prices, and 19 to 54 percent for Australian wheat prices. Also, cointegration analysis shows significant improvement in market efficiency particularly in the speed at which a market adjusts to departures from its long-run equilibrium. Within the Pacific beef market the speed of adjustment increased under GATT from 0.309 to 0.609; between the Pacific beef and the Atlantic beef market the speed of adjustment increased from 0.246 to 0.592; and the wheat market speed of adjustment increased from 0.064 to 0.414.