Spatial Price Adjustment with and Without Trade

Abstract:     
In this paper we investigate the possibility that price transmission between spatially distinct markets might vary during periods with and without physical trade flows. We are able to test for differences in price transmission between trade and non-trade regimes by using Generalized Reduced Rank Regression (GRRR) techniques suggested by P.R. Hansen (2003). We apply these techniques to semi-weekly price and trade flow data for tomato markets in Zimbabwe and find that intermarket price adjustment occurs in both trade and non-trade periods. Indeed, the adjustments are generally larger and more rapid in periods without physical trade flows. This finding underscores the importance of information flow for market performance.

Keywords: Spatial price transmission, cointegration, Zimbabwe, reduced rank regression, tomatoes

JEL Classification: Q13, R12, C32, P42

working papers series