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The Nature and Costs of Dis-Equilibrium Trade: The Case of Transatlantic Grain Exports in the 19th Century

Author

Listed:
  • Mette Ejrnæs

    (Institute of Economics, University of Copenhagen)

  • Karl Gunnar Persson

    (Institute of Economics, University of Copenhagen)

Abstract

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.

Suggested Citation

  • Mette Ejrnæs & Karl Gunnar Persson, 2005. "The Nature and Costs of Dis-Equilibrium Trade: The Case of Transatlantic Grain Exports in the 19th Century," Discussion Papers 05-02, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0502
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    File URL: http://www.econ.ku.dk/english/research/publications/wp/2005/0502.pdf/
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    References listed on IDEAS

    as
    1. 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, December.
    2. Kenneth A. Froot & Michael Kim & Kenneth Rogoff, 2019. "The Law of One Price Over 700 Years," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 1-35, May.
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    JEL classification:

    • F1 - International Economics - - Trade
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • N7 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services

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