The Law of One Price in International Trade: A Critical Review

Dragan Miljkovic

Review of Agricultural Economics, 1999, vol. 21, issue 1, 126-139

Abstract: The law of one price (LOP) is one of the most frequently tested economic laws. Although called a law, it has probably been violated more than any other economic law (on the basis of the results of numerous empirical studies). Furthermore, the LOP is often utilized as the building block in international agricultural trade models without previously checking the validity of that assumption for that particular commodity. This can sometimes lead to erroneous conclusions that can have serious consequences on policy-making decisions. This article represents a critical review of recent works that discuss how some factors, such as transportation (transaction) costs, tariffs, nontariff barriers, pricing to market, exchange rate risk, and trade regionalization, can prevent market arbitrage to force closer convergence of international prices. The validity of some methods often used for testing the LOP, such as cointegration analysis, is critically reviewed as well.

Date: 1999
References: Add references at CitEc
Citations: View citations in EconPapers (35)

Downloads: (external link)
http://hdl.handle.net/10.2307/1349976 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:revage:v:21:y:1999:i:1:p:126-139.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

More articles in Review of Agricultural Economics from Agricultural and Applied Economics Association Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ( this e-mail address is bad, please contact ) and Christopher F. Baum ().