The Nature and Costs of Dis-Equilibrium Trade: The Case of Transatlantic Grain Exports in the 19th Century
The essential issue addressed in this paper is whether inefficient spatial arbitrage has significant welfare effects. The paper looks at the gains from improved market efficiency in transatlantic grain trade in the period 1855-1895. It shows that there is a law of one price equilibrium but that markets display spells of demand- or supply- constrained trade. Over time adjustments back to equilibrium as measured by the half-life of a shock become faster, and adjustment parameters are much larger than routinely reported in the PPP-literature. There are also significant gains from improved market efficiency but most of that improvement takes place in one step after the information ‘regime’ shifts from pre-telegraphic communication to a regime with swift transmission of information in an era with a sophisticated commercial press and telegraphic communication. Improved market efficiency probably stimulated trade more than falling transport costs.
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- Kevin H. O'Rourke & Jeffrey G. Williamson, 2001. "Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650592.
- Froot, Kenneth A. & Kim, Michael & Rogoff, Kenneth, 1995. "The Law of One Price Over 700 Years," Working Papers 95-13, C.V. Starr Center for Applied Economics, New York University.
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