Product Aggregation, Market Integration, and Relationships between Prices: An Application to World Salmon Markets: Comment

Abstract

species. These conclusions led to a number of significant policy implications. ABW's analysis is based on the premise that when markets are well integrated the LOP holds. The methodology employed is the Johansen which, as ABW claim, ...provides the critical link in empirical work when prices are nonstationary, because it allows testing of hypotheses on the cointegration parameters in this framework, in contrast to what is possible with the Engle and Granger test (p. 579). A large body of literature in recent years has questioned the above premise and methodology for testing market integration (e.g., Barrett 1996, McCallum, McNew, McNew and Fackler, Miljkovic). We believe that it is important to define market integration in a more precise manner before drawing conclusions and policy recommendations. The empirical international trade literature and the open macroeconomics literature rely on the concept of tradability. A product is tradable between two countries if the good is actually traded, or if market intermediaries are indifferent