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Market Integration and Transport Costs in France 1825-1903: A Threshold Error Correction Approach to the Law of One Price

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  • Mette Ejrnæs

    (Institute of Economics, University of Copenhagen)

  • Karl Gunnar Persson

    (Institute of Economics, University of Copenhagen)

Abstract

This paper argues that the appropriate standard for the analysis of commodity market integration is the transport cost adjusted law of one price. A threshold error correction model that incorporates that property is developed and applied to French wheat prices in the 19th century. This type of modelling acknowledges the fact that error corrections only take place when price differentials between markets exceed transport costs. The method used generates more accurate estimates of the adjustment speed to eqilibrium price differentials between markets and transport costs, which turn out to have a good fit with observed costs. Unlike previous studies this paper shows that French wheat markets were well integrated by the middle of the 19th century.

Suggested Citation

  • Mette Ejrnæs & Karl Gunnar Persson, 1998. "Market Integration and Transport Costs in France 1825-1903: A Threshold Error Correction Approach to the Law of One Price," Discussion Papers 98-19, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:9819
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    File URL: http://dx.doi.org/10.1006/exeh.2000.0733
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    References listed on IDEAS

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    1. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December.
    2. Weir, David R., 1984. "Life Under Pressure: France and England, 1670–1870," The Journal of Economic History, Cambridge University Press, vol. 44(1), pages 27-47, March.
    3. Chevet, Jean-Michel & Saint-Amour, Pascal, 1992. "L'intégration des marchés du blé en France aux XVIIIe et XIXe siècles," Cahiers d'Economie et de Sociologie Rurales (CESR), Institut National de la Recherche Agronomique (INRA), vol. 22.
    4. Persson,Karl Gunnar, 1999. "Grain Markets in Europe, 1500–1900," Cambridge Books, Cambridge University Press, number 9780521650960.
    5. Flandreau, Marc, 1996. "Adjusting to the Gold Rush: Endogenous Bullion Points and the French Balance of Payments 1846-1870," Explorations in Economic History, Elsevier, vol. 33(4), pages 417-439, October.
    6. B.M. Roehner, 1994. "Les mécanismes d'interdépendance spatiale entre marchés du blé au XIXe siècle," Histoire, économie & société, Programme National Persée, vol. 13(2), pages 343-394.
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    Cited by:

    1. repec:spo:wpecon:info:hdl:2441/2241 is not listed on IDEAS
    2. Markus Lampe & Paul Sharp, 2014. "Greasing the wheels of rural transformation? Margarine and the competition for the British butter market," Economic History Review, Economic History Society, vol. 67(3), pages 769-792, August.
    3. Rafael, Dobado-González & Alfredo, García-Hiernaux & David, Guerrero-Burbano, 2013. "West versus East: Early Globalization and the Great Divergence," MPRA Paper 48773, University Library of Munich, Germany.
    4. Sahito, Jam Ghulam Murtaza, 2015. "Market integration of wheat in Pakistan," Discussion Papers 72, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).
    5. Rojas, Angela Milena, 2007. "Cliometría: Una comunidad científica en el pseudo-mercado del conocimiento (1957-2006)," Revista Lecturas de Economía, Universidad de Antioquia - CIE, May.
    6. Brunt, Liam & Cannon, Edmund, 2013. "Integration in the English wheat market 1770-1820," CEPR Discussion Papers 9504, C.E.P.R. Discussion Papers.
    7. Daudin, Guillaume, 2010. "Domestic Trade and Market Size in Late-Eighteenth-Century France," The Journal of Economic History, Cambridge University Press, vol. 70(3), pages 716-743, September.
    8. Lampe, Markus, 2009. "Effects of Bilateralism and the MFN Clause on International Trade: Evidence for the Cobden-Chevalier Network, 1860-1875," The Journal of Economic History, Cambridge University Press, vol. 69(4), pages 1012-1040, December.
    9. William Hynes & David S. Jacks & Kevin H. O'rourke, 2012. "Commodity market disintegration in the interwar period," European Review of Economic History, Oxford University Press, vol. 16(2), pages 119-143, May.
    10. Federico, Giovanni, 2007. "Market integration and market efficiency: The case of 19th century Italy," Explorations in Economic History, Elsevier, vol. 44(2), pages 293-316, April.
    11. Bassino, Jean-Pascal & van der Eng, Pierre, 2019. "Japan and the Asian Divergence: Market Integration, Climate Anomalies and Famines during the 18th and 19th Centuries," CEI Working Paper Series 2018-18, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    12. Dobado, Rafael & Marrero, Gustavo A., 2005. "Corn Market Integration in Porfirian Mexico," The Journal of Economic History, Cambridge University Press, vol. 65(1), pages 103-128, March.
    13. Cormac Ó Gráda, 2002. "Adam Smith and Amartya Sen : markets and famines in pre-industrial Europe," Working Papers 200218, School of Economics, University College Dublin.

    More about this item

    Keywords

    market integration; Law of One Price; error correction; France;

    JEL classification:

    • N73 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Europe: Pre-1913
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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