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

Mette Ejrnæs and Karl Gunnar Persson
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Karl Gunnar Persson: Institute of Economics, University of Copenhagen

No 98-19, Discussion Papers from University of Copenhagen. Department of Economics

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.

Keywords: market integration; Law of One Price; error correction; France (search for similar items in EconPapers)
JEL-codes: N73 C32 (search for similar items in EconPapers)
Pages: 33 pages
Date: 1998-12
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Published in: Explorations in Econ History 37(2) 2000, 149-173

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http://dx.doi.org/10.1006/exeh.2000.0733

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