Spatial Price Adjustment with and Without Trade
Emma C. Stephens
Cornell International Institute for Food, Agriculture and Development
University of Goettingen (Gottingen)
Christopher B. Barrett
Cornell University - Charles H. Dyson School of Applied Economics & Management
November 1, 2010
Oxford Bulletin of Economics and Statistics, Forthcoming
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
Date posted: May 20, 2011 ; Last revised: May 24, 2011
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