How Do Us Commodity Markets Evolve Over 200 Years? Evidence from a Time Series Decomposition

Abstract

I explore US commodity market integration through price convergence, efficiency, and intertemporal smoothing across a wide basket of goods from 1750-1949. I find consistent price convergence throughout, with rates notably faster than in Europe from 1750-1774 and 1855-1910. I find the fastest convergence for the frontier and high weight-to-value goods. Efficiency is also higher than in war-torn Europe from 1750-1820 and consistently increases throughout the sample until plateauing around 1900. The gains in efficiency also occur earlier than previously understood, with large improvements before 1820. Finally, seasonal smoothing is relatively constant for all but the most perishable goods, whose seasonal amplitudes become larger as production increases and transportation costs fall. This is not fully halted until the 1920s when cold storage becomes more accessible and agricultural practices improve.

Keywords: US economic history, commodities, market integration, trade costs, price convergence, market efficiency, dynamic factor analysis