Author

Jau-Rong Li

Date of Award:

1997

Document Type:

Dissertation

Degree Name:

Doctor of Philosophy (PhD)

Department:

Economics and Finance

Advisor/Chair:

Christopher B. Barrett

Abstract

Market integration testing is important to agricultural marketing, industrial organization, international trade, and international model design. With reliable market integration information, decision makers can undertake appropriate actions to maximize profits, welfare, or both. Level I market analysis, which uses price data solely, has proved unreliable especially in the presence of discontinuous or bidirectional trade, or significant or nonstationary transaction costs.

Level II market analysis methods, which incorporate both transactions costs and prices, permit spatial markets to be integrated in some periods and segmented in others, thereby obviating many level I method problems. However, level II methods still fail to distinguish between market integration and spatial market equilibrium. Both level I and level II methods omit the rich information provided by trade flow data.

This dissertation develops the first level III method-combining price, transactions costs, and trade flow data, and thus can move beyond the flaws remaining in levels I and II methods. The full information parity bounds model (FIPBM) enables researchers to distinguish between market integration, a concept of market "conduct," and spatial market equilibrium, one of market "performance." FIPBM also shows real promise in signaling the importance of unobservable transactions costs, the frequencly of nontrading periods of competitive disequilibrium likely due to nontariff trade barriers, and the effects of asymmetric trade policies. FIPBM seems better suited to international markets analysis than do other existing methods.

This dissertation applies levels I,II, and III methods to analyze price, trade, and market relationships in the product and factor markets of pork industries in key Pacific Rim countries. This empirical work highlights the superiority of the FIPBM approach. FIPBM finds that pork, hog, and feed grain markets between Canada and the United States are almost always integrated. But they are not in competitive equilibrium, implying that there frequently exist positive accounting profits to arbitrage. By contrast, markets between Asian (Taiwan and Japan) and North American countries (Canada and the United States) are integrated less frequently than are intra-North American markets. This reflects greater trans-Pacific transactions costs that reduce tradability. However, markets between Asian and North American countries are commonly in competitive equilibrium.

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Economics Commons

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