the internationalisation of stock markets and the abolition of u k exchange control this paper aims to assess the impact of the abolition of u k exchange control on the degre of integration of u k and overseas stock markets using cointegration techniques we find that although there is no significant increase in the correlation of short run stock market returns for the united kingdom and certain overseas markets post 1979 there does appear to be a marked increase in the degree to which these markets move together in the long run after this date there appears to be no long run gain from diversification since cointegration of two variables implies that at least one of them can be used to help forecast the other our findings also imply the inefficiency of a number of stock markets

distinguishing between equilibrium and integration in spatial price analysis this article introduces a new spatial price analysis methodology based on maximum likelihood estimation of a mixture distribution model incorporating price transfer cost and trade flow data this method permits differentiation between market integration and competitive market equilibrium and derivation of intuitive measures of intermarket tradability competitive market equilibrium perfect integration segmented equilibrium and segmented disequilibrium one can also use these estimates to derive semiparametric measures of time varying regime probabilities to track changing market conditions an application to trade in soybean meal among pacific rim economies demonstrates the usefulness of the method copyright 2002 oxford university press

moral hazard in risk averse teams holmstrom 1982 has shown that a non budget balancing contract induces a team of risk neutral agents to choose the first best effort levels this is not generally true when agents are risk averse furthermore a massacre contract which punishes all but one agent when the outcome is low can attain the first best over a wider range of parameters than any other budget balancing contract

estimating the degree of market integration existing tests of spatial market integration are commonly based on statistical criteria without an explicit link to an economic model of price determination this article proposes new measures of market integration defined directly in terms of a well known spatial price determination model and develops an econometric methodology for estimating these measures due to the intractability of the conditional density function of prices we use indirect inference to estimate the model parameters and market integration measures the methodology is illustrated with simulated data and is applied to soybean price data for the united states brazil and the eu copyright 2008 oxford university press

bilateralism and free trade we study a setting with many countries in each country there are firms that can sell in the domestic as well as foreign markets countries can sign bilateral free trade agreements that lower import tariffs and thereby facilitate trade we allow a country to sign any number of bilateral free trade agreements a profile of free trade agreements defines the trading regime our principal finding is that in symmetric settings bilateralism is consistent with global free trade we also explore the effects of asymmetries across countries and political economy considerations on the incentives to form trade agreements

bilateralism multilateralism and the quest for global free trade abstract we develop an equilibrium theory of trade agreements in which both the degree and the nature bilateral or multilateral of trade liberalization are endogenously determined to determine whether and how bilateralism matters we also analyze a scenario where countries pursue trade liberalization on only a multilateral basis we find that when countries have asymmetric endowments or when governments value producer interests more than tariff revenue and consumer surplus there exist circumstances where global free trade is a stable equilibrium only if countries are free to pursue bilateral trade agreements by contrast under symmetry both bilateralism and multilateralism yield global free trade

market integration and uncertainty the impact of domestic and international commodity price variability on rural household income and welfare in ghana and peru abstract we estimate rural household income uncertainties and welfare changes due to commodity price and production variability in ghana and peru under different scenarios for international and domestic market shocks uncertainties significantly affect the variability of household income especially for households that are specialised in the production of few commodities wider exposure to international markets would increase the income variability for producers of commodities that are subjected to stabilisation policies in ghana but would reduce the variability that rural households in peru face in terms of welfare rural households in both countries are expected to gain if fully exposed to international markets

cointegration and market integration an application to the indonesian rice market this article suggests improvements in the use of regression analysis to measure spatial market integration the procedure pioneered by ravallion is still widespread but is valid only under certain conditions of exogeneity the alternative offered here is an error correction mechanism which makes it possible to test for exogeneity as well as indicating the direction and strength of causality in price formation between markets the method is illustrated with data on rice prices in different parts of the indonesian market the results confirm among other things that supply sources are more important than demand sources in driving prices

the mfn clause welfare and multilateral cooperation between countries of unequal size abstract this paper analyzes mfn in a competing exporters model of trade between three countries with unequal endowments and shows that mfn yields higher aggregate welfare than tariff discrimination even as it makes low income countries worse off furthermore in a repeated game of tariff cooperation multilateral free trade is easier to sustain under mfn punishments relative to discriminatory ones this conclusion holds even when tariff discrimination takes the form of bilateral trade agreements overall the analysis shows that from the viewpoint of low income countries mfn and multilateral tariff cooperation are complementary in nature

the influence of proximity to market on bean producer prices in nicaragua transport costs are an important determinant of smallholder welfare in developing countries in particular transport costs influence the prices that smallholders receive for their produce we propose a simple way of quantifying this influence taking the example of bean producers in nicaragua we employ a hedonic price model to estimate the effects of a smallholder s proximity to markets on the prices that he she receives while controlling for other factors such as the volume and quality of beans sold we find that on average each additional minute of travel time reduces farm gate prices by 2 5 cents per quintal based on these results the annual income from bean sales of the average smallholder in our sample would increase by between 24 and 110 usd if travel time to markets were reduced by 25 estimates of this nature can make an important contribution to cost benefit assessments of infrastructure investments

how is the liberalization of food markets progressing market integration and transaction costs in subsistence economies we propose a modification of baulch s parity bounds model to measure the market integration of food markets in developing countries instead of extrapolating a single observation of transaction costs we estimate transaction costs predicted transaction costs compare well with survey data of traders probabilities of market regimes computed on the basis of predicted transaction costs fluctuate significantly and do not support fixed regime probabilities over time the probability of market integration with trade decreases consistently during food shortages increasing either the probability of no trade or loss making trade or the probability of profitable but unexploited trade opportunities the data further support a negative trend in market integration with trade

testing market integration new approaches with case material from the west bengal food economy given the inferential dangers of received methods a new methodology is introduced to provide a sequence of tests using weekly spot prices to examine the dynamic relationship of market commodity prices in three locations in west bengal tests suggest that the markets are integrated but a lower degree of integration of paddy and rice prices is identified the hypothesis of full market integration is rejected structural and institutional factors which affect the specifics of performance are identified physical isolation the institutional complexity of marketing systems and contractual forms the polarisation of assets assets specificity the institutional control of information and price formation the underdevelopment of linked markets and the idiosyncratic implementation of state regulatory policy and auto regulatory responses enter the explanation

does asymmetry in price transmission exist in the rice market in sri lanka abstractthis study analyses asymmetry in price transmission between wholesale and retail rice markets in sri lanka using the threshold autoregressive model we found that the wholesale and the retail rice markets in sri lanka are integrated with price changes moving from the wholesale to the retail market however the price transmission process is asymmetric in particular price increases at the wholesale market transmit immediately to the retail market while price decreases transmit more slowly parameter stability test and follow up analysis indicated that the price transmission process is asymmetric only during periods of price surges suggesting that the rice market is not efficient during these periods

multilateral tariff cooperation during the formation of free trade areas we consider the impact of the formation of free trade agreements on multilateral tariff cooperation we assume that countries are limited to selfenforcing multilateral arrangements that balance the gains from deviating against the costs of an ensuing trade war we find that the emergence of free trade areas will be accompanied by a temporary retreat from liberal multilateral trade policies as the initial balance supporting multilateral cooperation is upset eventually however as the full impact of the emerging free trade agreement on multilateral trade patterns is felt this initial balance tends to reemerge and liberal multilateral trade policies can be restored

do south south preferential trade agreements undermine the prospects for multilateral free trade due to trade diversion there has been concerns expressed over the proliferation of preferential trade agreements ptas between south countries in this paper we compare welfare across the various forms of bilateral free trade agreements ftas and customs unions cus and examine their implications for the stability of multilateral free trade while north north ptas tend to yield higher welfare we fi nd certain cases where south south agreements are more likely to lead to global free trade than north north or north south agreements but other cases where multilateral cooperation over free trade is the least likely under south south agreements we also examine how the expansion of existing agreements or the combination of separate agreements affects the potential for free trade

market analysis methods are our enriched toolkits well suited to enlivened markets the past fifteen years have brought historic reduction of government intervention in agricultural markets in the developing world most economists and policy makers believe these reforms enliven markets previously fettered by excessive government authority nonetheless the impact of market oriented reforms on the spatial and intertemporal extent and the competitiveness of markets remains an inherently empirical question meanwhile there also have been major innovations in methods used to analyze markets and prices due largely to the rapidly emerging time series econometric literature agricultural economists toolkits have changed nearly as rapidly and dramatically as have developing economy markets but can these enriched toolkits answer the

optimal contracts for teams in a team subject to both adverse selection each member s ability is known only to himself and moral hazard effort cannot be observed optimal contracts are under certain conditions linear in the team s output the outcome is the same whether the principal observes just the total output or each individual s contribution thus monitoring is not needed to prevent shirking by team members instead the role of monitoring is to discipline the monitor production is a collective enterprise by workers in a firm or firms in a joint venture the synergy that is the reason for the team s existence may mean that an individual s contribution to the team s output is not distinguishable so that it is impossible to pay him according to his own productivity how should the principal remunerate the team members so as to maximize his own profit in this paper we analyze incentives in teams with asymmetric information both adverse selection each member s ability is known only to himself and moral hazard effort cannot be observed directly holmstrom 1982 showed that in a team model with moral hazard the principal can ensure an outcome arbitrarily close to the full information ideal by using a contract that punishes each team member arbitrarily severely whenever team output falls below some target however this seems to be an unrealistically drastic way of solving the moral hazard problem in our model we in effect prevent the principal from using such a contract by introducing adverse selection in addition to moral hazard and by assuming that ability and effort interact in such a way that the principal is unable to disentangle an agent s effort from his ability under the assumption that the principal and the team members are risk neutral we shall show that the principal can implement his information constrained optimum simply by offering each agent a payment linear in the team s output although the essential feature of our analysis is the interaction between adverse selection and moral hazard this result can be understood by first considering the special case in which the agents abilities are common knowledge in this case the moral hazard problem can be completely solved the principal can do as well as he

nonpoint source pollution taxes and excessive tax burden if a regulator is unable to measure firms individual emissions an ambient tax can be used to achieve the socially desired level of pollution with this tax each firm pays a unit tax on aggregate emissions in order for the tax to be effective firms must recognize that their decisions affect aggregate emissions when firms behave strategically with respect to the tax setting regulator under plausible circumstances their tax burden is lower under an ambient tax relative to the tax which charges firms on the basis of individual emissions firms may prefer the case where the regulator is unable to observe individual firm emissions even if this asymmetric information causes the regulator to tax each firm on the basis of aggregate emissions

price transmission analysis a flexible methodological approach applied to european pork and lamb markets the study of spatial price relationships helps to explain market performance and their degree of integration applying only one method of analysis may not be flexible enough to account for the complex interactions of prices in separated markets this paper complements usual cointegration tests with a description of dynamic features and patterns of causality among price series the method proposed is applied to study spatial pork and lamb prices relationships within the eu in the period 1988 1995 the results indicate that european markets for both commodities are integrated not only in the long run but in the short run as well although the price transmission process is more efficient in the porkmeat industry

empirical investigation into spatial integration without direct trade comparative analysis before and after the establishment of the ethiopian commodity exchange this paper presents a comparative analysis of the spatial price cointegration of coffee markets in ethiopia in the pre and post ethiopian commodity exchange ecx era using the autoregressive distributed lag ardl cointegration framework the study takes into consideration a market condition in which government policy restricts arbitrage coffee trade between coffee producing areas using coffee price data from 1998 2013 and applying a bounds test approach and toda yamamoto granger causality test the study finds that the establishment of ecx has strengthened regional integration rather than a national harmony between producer markets we also find evidence that since the establishment of ecx an opportunity was created for high quality coffee to dominate price formation while also allowing lower quality coffee producing areas to establish themselves the study underlines the importance of market transparency and exchange of price information between producer markets

dynamic tariffs with asymmetric information recent developments in dynamic game theory are applied to determine when two countries can sustain freer trade given that they determine trade policies non cooperatively countries know their own level of protection but not the other country s level of protection using import trigger strategies cooperation in the form of low tariffs can be supported although there are periodic reversionary high tariff episodes however if terms of trade trigger strategies are used cooperation does not occur

endogenous trading bloc formation in a north south global economy the majority of the trading blocs to date are between similar countries rather than between developed and developing countries this paper provides a rationale for why trading blocs among similar countries may arise as an equilibrium phenomenon it develops a model of an asymmetric world economy in which there are at least four countries the countries are differentiated with respect to their market size and they choose their trading partners in the coalition proof nash equilibrium either there is global free trade or free trade areas are formed among similar countries la plupart des blocs commerciaux sont formes de pays similaires plutot que de pays developpes et en voie de developpement ce memoire explique pourquoi ce genre de resultat peut emerger en tant que phenomene d equilibre on developpe un modele d economie mondiale asymetrique dans lequel il y a au moins quatre pays les pays different par la taille et la nature de leurs marches et choisissent leurs partenaires commerciaux dans un equilibre libre de coalitions a la nash ou bien il existe un regime global de libre echange ou bien des zones de libre echange entre pays similaires emergent

exchanging market access at the outsiders expense the case of customs unions under a customs union countries can exchange preferential market access by coordinating external tariffs to shift profits from excluded countries i show that the exporting rents resulting from this coordination can offset trade diversion losses produced by the union even if its members are relatively small in world markets such gains come however at the expense of excluded countries i show that small countries can use customs unions also to foster multilateral cooperation by increasing the incentives of excluded countries to support global free trade le cas des unions douanieres dans le cas d une union douaniere les pays peuvent marchander l acces preferentiel a un marche en coordonnant leurs tarifs externes de maniere a extraire des profits des pays exclus on montre que les rentes a l exportation qui resultent de cette coordination peuvent compenser les pertes attribuables a la diversion du commerce qui decoule de l union douaniere meme si ses membres sont relativement de petite taille dans les marches mondiaux de tels gains se font cependant aux depens des pays exclus on montre que les petits pays peuvent utiliser les unions douanieres pour stimuler la cooperation multilaterale en accroissant les incitations des pays exclus a poursuivre des strategies de libre echange global

is the gatt wto s article xxiv bad the gatt wto article xxiv prevents a customs union cu from raising its common external tariff in this paper we compare cu formation with and without this article xxiv constraint we show in a multi country oligopoly model that for a given cu structure article xxiv improves world welfare by lowering trade barriers however we also show that article xxiv has a composition effect on cu formation it affects the endogenous choice of cus by encouraging more symmetric cus article xxiv causes more trade to be subject to trade barriers as a result article xxiv may be bad for world welfare 2012 elsevier b v

identifying price linkages a review of the literature and an application to the world market of cotton this paper reviews the literature of price linkages and examines the degree to which cotton prices are linked it also tests whether such linkages have improved over the last decade it concludes that the degree of linkage has improved over the last decade while the main source of this improvement appears to be a result of short run price transmission and to a lesser extent long run co movement

transfer costs spatial arbitrage and testing for food market integration conventional tests for food market integration ask often misleadingly whether prices in different locations move together in this paper an alternative methodology the parity bounds model pbm is developed which uses information on transfer costs in addition to food prices to assess the efficiency of spatial arbitrage monte carlo experiments using data generated by a point space spatial price equilibrium model show the pbm to be statistically reliable an application to philippine rice markets demonstrates that the pbm detects efficient arbitrage when other tests do not

market integration efficiency of arbitrage and imperfect competition methodology and application to u s celery this paper develops and applies a methodology to test for efficiency of interregional commodity arbitrage application of the methodology requires only time series data on prices for alternative cities regions countries or product forms yet the approach is capable of generating evidence on a number of market parameters including market integration arbitrage efficiency the magnitude of marketing margins product substitutability and competitiveness of markets estimation is based on a switching regression model with three regimes efficient arbitrage relative shortage and relative glut results from application of the model to u s celery marketing indicated significant departures from efficient arbitrage for both california and florida celery

vegetable oil market and biofuel policy an asymmetric cointegration approach abstract the present paper analyses the long run relationship between vegetable oil prices and conventional diesel prices in the eu for the period 2005 2007 we applied recent developments in the threshold cointegration approach to investigate the presence of asymmetric dynamic adjusting processes between the prices of rapeseed oil sunflower oil and soybean oil and the price of a mineral oil diesel the results presented suggest a two regime threshold cointegration model only for the rapeseed oil diesel price pair thus the rapeseed oil price adjusts rapidly to its long run equilibrium determined by fossil diesel prices but this adjustment is asymmetric it differs if the divergence between the two prices is above or below a critical threshold consequently rapeseed oil appears particularly exposed to external shocks deriving from global political scenarios suggesting the reassessment of the high quota 80 of eu biodiesel represented by this vegetable oil

regulating multiple polluters deterrence and liability allocation we conisicler regulation of multiple polluters when inidividual emissions are uniobservable the tension between pollution deterrence and funding of remediation is examined under two constraints that penalty revenues fully fund remediation costs and that the regulator cannot make positive transfers to firms to isolate the effect of increasinig the niumber of polluters we compare an industiy consisting of a single large firm with one in which many small firms in aggregate mimic the large firm contrary to previous findings both the number of firms and the ability to monitor individual firms affect the welfare of a large class of regulators

a strategic and welfare theoretic analysis of free trade areas abstract we construct a three country model to determine how the formation of free trade areas ftas affects optimal tariffs and welfare we find that at constant rest of the world row tariffs the adoption of internal free trade induces union members to reduce their external tariffs below the kemp wan j int econom 6 1976 95 97 level and causes row s terms of trade to improve and its welfare to rise when row also behaves optimally its policy response to the formation of the fta is to raise tariffs generally fta members prefer to liberalize internal trade partially and find regional integration appealing only if their collective size is sufficiently large we also demonstrate how ftas may undermine the attainment of global free trade

trade diversion and declining tariffs evidence from mercosur abstract this paper empirically examines the alternative posed by richardson j intern econ 34 1993 39 to the traditional view that trade integration may exacerbate inefficiencies richardson s hypothesis boldly predicts that trade diversion and trade creation may actually cause tariffs to decline the hypothesis is fundamentally attributable to the presence of a political component in the governments objective functions a cross sectionally rich data set on trade and tariffs from the mercosur pact countries primarily argentina is used the evidence yields surprising conclusions about the validity of endogenous tariff determination in models of trade integration

external trade diversion exclusion incentives and the nature of preferential trade agreements in a game of endogenous trade agreements between three countries we show that while the pursuit of customs unions cus prevents global free trade from emerging as a coalition proof nash equilibrium the pursuit of free trade agreements ftas does not this result reflects the relatively flexible nature of ftas whereas each fta member can independently undertake further trade liberalization with respect to the non member cu members must do so as a group due to their common external tariff by diverting members exports away from the non member both types of trade agreements induce the non member to voluntarily lower its import tariffs

preferential trade agreements and multilateral tariff cooperation are preferential trade agreements ptas building or stumbling blocks for multilateral trade liberalization i address this question in an infinitely repeated tariff game between three countries engaged in intraindustry trade under oligopoly the central result is that when countries are symmetric a free trade agreement fta undermines multilateral tariff cooperation by adversely affecting the cooperation incentive of the nonmember whereas a customs union cu does so via its effect on the cooperation incentives of members however when countries are asymmetric with respect to either market size or cost there exist circumstances where ptas facilitate multilateral tariff cooperation

testing market integration a model of spatial price differentials for a tradable good is proposed which avoids the inferential dangers of received methods using static price correlations the proposed method also extracts more information on the causes of price differentials from the same data the method is illustrated using monthly rice price data for postindependence bangladesh including the very substantial regional price shocks during the 1974 famine impediments to market integration are indicated

testing for food market integration revisited this article considers the statistical performance of four commonly used econometric tests for market integration the law of one price the ravallion model cointegration and granger causality a spatial price equilibrium spe model that is subject to both production shocks and general price inflation and mimics many of the key characteristics of integrated food markets is constructed the model is used to generate food price time series of lengths that are typical of the short sample sizes available in most developing countries for both instantaneously integrated and independent markets a series of monte carlo experiments on these artificial food price time series are performed which show that all four of the conventional tests for market integration are statistically flawed

some further evidence on the law of one price the law of one price still holds international trade models often postulate the existence of a representative price i e the price which prevails at all markets this is known as the law of one price in this paper the law of one price is tested for seven commodities among four countries by explicitly considering transaction costs the empirical evidence suggests that in most cases the law of one price cannot be rejected asa maintained hypothesis furthermore for the remaining cases transaction costs seem to cause the failure

on market integration and liberalisation method and application to ethiopia the article suggests further improvements in the methodology to analyse market integration it provides corrections to and methodological extensions of recent work in this journal it also presents a way of applying market integration techniques to the analysis of shocks such as market liberalisation and war the method is applied to the effects of liberalisation and the end of the civil war on food markets in ethiopia the conclusion is that liberalisation had important effects on the long run and short run integration of food markets