Bulk Commodities and the Liverpool and London Markets of the Mid-19th Century

Abstract

We study British prices and the degree of commodity market integration between Liverpool, the bulk commodity port of mid-19th century, and London. A new wholesale commodity price index is presented for Liverpool and this is compared with the Klovland-Sauerbeck index. Next, we examine the relationship between Liverpool and London markets in specific bulk commodities. Our data consist of price indices for identically described goods in both Liverpool and London: three commodity groups (metal products, wood products, and processed foods), and the specific commodities of wheat and flour. Tests for cointegration reveal convergence among the six price pairs. We also find that the markets were highly integrated in the short-run because three of the commodity group pairs (processed foods, wheat, and flour) shared common features or cycles. A common cycle implies that transitory price shocks in Liverpool had the same impact on prices in London and vice versa. The importance of the London and Liverpool common cycle to a shock is brief. Its shock explains less than 20 percent of the variation in the relevant price levels after twelve months, on average.