We propose a modification of Baulch's parity bounds model to measure the market integration of food markets in developing countries. Instead of extrapolating a single observation of transaction costs, we estimate transaction costs. Predicted transaction costs compare well with survey data of traders. Probabilities of market regimes, computed on the basis of predicted transaction costs, fluctuate significantly and do not support fixed regime probabilities over time. The probability of market integration with trade decreases consistently during food shortages, increasing either the probability of no trade or loss-making trade or the probability of profitable but unexploited trade opportunities. The data further support a negative trend in market integration with trade. JEL codes: F14, Q13, Q17 In this paper, we investigate the measurement of market integration in domestic staple food markets in Malawi. Market integration is widely recognized as conducive to economic growth and poverty alleviation. A high degree of market integration implies smooth trade flows from surplus to deficit areas, improved transmission of price signals, less price volatility, production decisions that are made according to comparative advantage, gains from trade, and, hence, greater welfare. The increased integration of food markets in developing countries is considered to be of vital importance for agricultural transformation and economic growth (Fafchamps 1992). Market integration is also crucial from the perspective of food security. Many sub-Saharan countries face occasional food shortages as a result of crop failures, in turn caused by drought or other
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.