Testing for the law of one price: rice market integration in Bangladesh

Abstract

Recent studies of spatial market integration have adopted error correction models to test for its existence and for market dominance. An integrated empirical framework is proposed here which tests for long-run spatial market integration between price pairs using a dynamic vector autoregressive model and cointegration. Hypotheses tests of market integration, perfect market integration, and causality are conducted sequentially. The approach is illustrated using monthly prices from rice markets in Bangladesh since trade liberalisation in 1992. Results show that rice markets are perfectly integrated and that Dhaka dominates near markets but is dominated by more distant markets. Copyright © 2002 John Wiley & Sons, Ltd.

Testing for spatial market integration and law of one price in Turkish wheat markets

“…3 and, it is tested existence of co-integration among the price series following Johansen et al (2000) which allows two breaks in 2002:5 and 2004:5. 3 The procedure permits short run impulse dummies (D j,t−i ) up to k periods after the break so when k = 2 for example, dummies are included for 2002:6 and 2002:7, and 2004:6 and 2004:7, and in contrast to Perron (1997 test, a gradual transition between periods is permitted. To further intervention dummies (W m,t ), for 2000:8, 2001:4 and 2001:12 are also included to render the residual normal (Sanjuan and Dawson 2004).…”

“…These studies generally applied a radial model that was proposed by Ravallion (1986) to test the degree of price integration between the central and local markets. The second group of studies searched for whether the set of markets share common trend to measure strength of integration among the regional markets by using Johansen's (1988) co-integration framework (Goodwin 1992;Silvapulle and Jayasuriya 1994;Benson et al 1994;Asche et al 1999;Dawson and Dey 2002;Gosh 2003). The main idea of this approach is based on Stock and Watson (1988).…”

The Spatial Integration of Paddy Markets in Vietnam

“…In particular, models of the Law of One Price (Isard, 1977; Richardson, 1978) and the Ravallion model (Ravallion, 1986) are both extensions of the correlation idea. Co‐integration tests have also been used to test for the co‐movement of food prices and long‐run market integration (Alexander and Wyeth, 1994; Dawson and Dey, 2002).…”

Price linkages in the international skim milk powder market: empirical evidence from nonparametric and time-varying copulas

“…The former includes linear integration and cointegration (Dawson and Dey 2002), and nonlinear integration and cointegration (Goodwin and Piggott 2001;Abdulai 2000;Emmanouilides and Fousekis 2012). The latter includes local polynomial regression (Serra et al 2006).…”