Measure Of Market Integration Research Articles

Wiring China: The impact of telegraph construction on grain market integration in late imperial China, 1870–1911

AbstractHow did the telegraph improve market integration in late imperial China? This study exploits differences in the exogenous timing of telegraph construction in different prefectures from 1870 to 1911. The empirical results show that the arrival of the telegraph within a prefecture pair reduced the ratio of the two prefectures’ monthly high‐grade rice prices by 6.6 percentage points in nine southern Chinese provinces, or 17.2 per cent of the mean of the dependent variable. The main results are robust to controlling for institutional or transportation changes occurring during the same period, to using an alternative measure of market integration, to using prices of mid‐grade and low‐grade rice, and to excluding outliers with low data quality. In addition, the effect of the telegraph was stronger for prefecture pairs in which information transmission was more costly, and traditional long‐distance traders played an important role in the telegraph's promotion of market integration. In conclusion, our findings help us understand how a new information technology enhanced market integration in a premodern agrarian society with an established commercial network.

Bronze Age weight systems as a measure of market integration in Western Eurasia

Weighing technology was invented around 3000 BCE between Mesopotamia and Egypt and became widely adopted in Western Eurasia within ∼2,000 y. For the first time in history, merchants could rely on an objective frame of reference to quantify economic value. The subsequent emergence of different weight systems goes hand in hand with the formation of a continental market. However, we still do not know how the technological transmission happened and why different weight systems emerged along the way. Here, we show that the diffusion of weighing technology can be explained as the result of merchants' interaction and the emergence of primary weight systems as the outcome of the random propagation of error constrained by market self-regulation. We found that the statistical errors of early units between Mesopotamia and Europe overlap significantly. Our experiment with replica weights gives error figures that are consistent with the archaeological sample. We used these figures to develop a model simulating the formation of primary weight systems based on the random propagation of error over time from a single original unit. The simulation is consistent with the observed distribution of weight units. We demonstrate that the creation of the earliest weight systems is not consistent with a substantial intervention of political authorities. Our results urge a revaluation of the role of individual commercial initiatives in the formation of the first integrated market in Western Eurasia.

Decreasing market value of variable renewables can be avoided by policy action

Although recent studies have shown that electricity systems with shares of wind and solar above 80% can be affordable, economists have raised concerns about market integration. Correlated generation from variable renewable sources depresses market prices, which can cause wind and solar to cannibalise their own revenues and prevent them from covering their costs from the market. This cannibalisation appears to set limits on the integration of wind and solar, and thus to contradict studies that show that high shares are cost effective. Here we show from theory and with simulation examples how market incentives interact with prices, revenue and costs for renewable electricity systems. The decline in average revenue seen in some recent literature is due to an implicit policy assumption that technologies are forced into the system, whether it be with subsidies or quotas. This decline is mathematically guaranteed regardless of whether the subsidised technology is variable or not. If instead the driving policy is a carbon dioxide cap or tax, wind and solar shares can rise without cannibalising their own market revenue, even at penetrations of wind and solar above 80%. The strong dependence of market value on the policy regime means that market value needs to be used with caution as a measure of market integration. Declining market value is not necessarily a sign of integration problems, but rather a result of policy choices.

Organizing Labour market integration support for immigrants in Sweden

Integration is described by many societal stakeholders and by media as one of the major contemporary challenges facing society in Sweden. This article reviews some important labour market integration measures for immigrants in Sweden and outlines some of the insights from recent studies of how the measures are organized in practice. The article illustrates that while LMI support for immigrants is heavily subsidized by the state and administered through the Swedish Public Employment Service, much of the actual support efforts are provided by other public, private and social/nonprofit organizations who collaborate in projects or as part of local agreements. This creates a complexity in practice that is not necessarily conducive to a more sustainable integration of immigrants into the labour market.

International Market Integration: A Survey

AbstractMarket integration is a canonical topic in international finance. The question of whether and to what extent markets are integrated with the global economy has motivated one of the largest literatures in this field. Given this vast body of research, this survey shall only focus on the theoretical and empirical studies on one aspect of market integration – equity market integration. It reviews the evolution of various approaches employed in studying market integration. This survey discusses the recent empirical findings on cross‐sectional and time‐series dynamics of integration across developed and emerging markets. It also describes the empirical estimation of three current measures of market integration and discusses their usefulness as well as limitations. Finally, the survey provides a few future directions for this line of research.

Maize Market Integration: A Case Study of Maize Marketing In Ghana

Agricultural marketing remains a challenge; this is because a large proportion of the population is engaged in a form of small-scale agricultural production and marketing that is characterised by a multitude of constraints and market imperfections. Paramount among the constraints are limited land availability, poor physical and legal infrastructure, high transaction costs and few available and alternative livelihood support systems. For some of these constraints to be removed, there is the need for information flow. Thus, it is believed that, spatial price transmission or market integration measures, the degree to which markets at geographically separated locations share common long-run price or trade information on a homogenous commodity. Using the co-integration approach, the results of the study using either Techiman or Kumasi as the producer markets of maize, the following markets Bolga, Wa, Ho, Tamale, Mankesim, Koforidua, Accra, Cape Coast and Takoradi/Sekond (as consumer markets) shows that there is a long run price transmission relations with the consumer markets. However, Bolgatanga market is the only exception. It is recommended that the Ministry of Food and Agriculture should intensify collection and dissemination of data on maize prices to both consuming markets and producing markets. This can be enhanced by Government establishing market information centres in these markets where both traders and farmers could go for information on the price trend of the commodity in other market(s).Keywords: Co-integration; Marketing; Market Integration; Non-stationarity; stochastic process.

The Drivers of Market Integration Among Indigenous Peoples: Evidence From the Ecuadorian Amazon

ABSTRACTKnowledge of the driving forces behind indigenous participation in the market is essential for practitioners intending to integrate conservation and development policies in indigenous territories. Nevertheless, empirical research on the determinants of market integration among indigenous peoples is still scarce. This article uses household survey data and multivariate techniques to examine the drivers of market integration among indigenous groups in the Ecuadorian Amazon. We use multiple measures of market integration, including the sale of crops, timber, and wildlife; the use of credit; and participation in wage labor. The results show that the way in which indigenous peoples integrate into the market depends on their endowments of human, financial, and physical capital. More educated households are able to engage in commercial agriculture and nonagricultural wage work, whereas uneducated poor households in communities in conflict with outsiders are pushed to engage in poorly paid agricultural wage work and (often illegal) timber operations.

Local Food Prices and International Price Transmission

World food prices spiked in the periods 2007–8 and 2010–11. The impact of these spikes in world food prices on local food prices and thus on local consumers is determined by the food price pass through. Pass through is defined as the extent to which changes in world food prices lead to changes in local food prices. We examine the determinants of variation in food price pass through from global to local consumer prices in a global sample of 147 countries, using FAO data on world food prices and ILO data on food prices for consumers. While market integration matters, our study finds that income per capita is the dominant factor explaining cross-country variation in pass through of food prices. We estimate an elasticity of about −0.3 of pass through with respect to income per capita. This means far greater price transmission of food price shocks at the commodity level to final consumers in low-income countries than in high-income countries. The implication is that future swings in world food prices will in particular jeopardize food security in poor countries. Trade policy measures of market integration also affect the pass through significantly, whereas infrastructure and geography measures play no significant role.

Decomposing changes in competition in the Dutch electricity market through the residual supply index

We propose to assess the influence of a number of events on the degree of competition in the Dutch electricity wholesale market over the period 2006–2011 through a decomposition method based on the residual supply index. We distinguish regulatory market-integration events, firm-level events and changes in the level of residual demand. We conclude that market-integration measures to improve competition have been effective, but that changes in residual demand appear to have been equally important. Firm-level events have only had a minor impact on the intensity of competition.

The Integration of Grain Markets in the Eighteenth Century: Early Rise of Globalization in the West

Globalization, if defined as the integration of international commodity markets, started in the eighteenth century and progressed gradually and with some setbacks into the nineteenth century, instead of suddenly appearing at some point after the 1820s. We use grain prices in Europe and the Americas to determine the extent and dynamics of market integration throughout the eighteenth and nineteenth centuries. An innovative methodology, with special attention being paid to changes in residual dispersion of the univariate models of relative prices between markets, permits us to obtain a measure of market integration over time.

Limited arbitrage between equity and credit markets

We document that short-horizon pricing discrepancies across firms' equity and credit markets are common and that an economically significant proportion of these are anomalous, indicating a lack of integration between the two markets. Proposing a statistical measure of market integration, we investigate whether equity–credit market integration is related to impediments to arbitrage. We find that time variation in integration across a firm's equity and credit markets is related to firm-specific impediments to arbitrage such as liquidity in equity and credit markets and idiosyncratic risk. Our evidence provides a potential resolution to the puzzle of why Merton model hedge ratios match empirically observed stock-bond elasticities (Schaefer and Strebulaev, 2008) and yet the model is limited in its ability to explain the integration between equity and credit markets (Collin-Dufresne, Goldstein, and Martin, 2001).

A Just Distribution of Health Care in the Case of Orphan Medicinal Products: Aligning the Interests of European Economic Integration and National Welfare Policy

Since market integration measures touch upon issues that are the sole responsibility of the Member States, the efforts of the European Union (EU) to achieve a harmonised internal market clash, in some areas, with national welfare policy. Such a conflict exists where the allocation of health resources is concerned. The EU is very proactive in fostering research and development of medicinal products aimed at treating patients who suffer from rare diseases. The European incentive scheme (Regulation (EC) No. 141/2000) has been a considerable success but, although products are developed, they are not necessarily available to the patient. This is due to the fact that decisions about the price and the reimbursement of these (very expensive) products are made at the national level. This article draws up a framework for distributing limited health resources where medicinal products for rare diseases (orphan medicine) are concerned. The provision in the Patients' Rights Directive (Dir. 2011/27/EU) on cooperation in health care among the Member States is discussed through the lens of ‘solidarity’ (understood as mutual cooperation) in order to align and remedy the deficits in the system and guarantee the patient access to the product in a timely and equitable manner.

The Cost of Railroad Regulation: The Disintegration of American Agricultural Markets in the Interwar Period

We investigate the costs of transportation regulation using the example of agricultural markets in the United States. Using a large database of prices by state of agricultural commodities, we find that the coefficient of variation (as a measure of market integration between states) falls for many commodities until the First World War. We demonstrate that this reflected changes in transportation costs which in turn in the long run depended on productivity growth in railroads. 1920 marked a change in this relationship, however, and between the First and Second World Wars we find considerable disintegration of agricultural markets, ultimately as a consequence of the 1920 Transportation Act. We argue that this benefited railroad companies in the 1920s and workers in the 1930s, and we put forward an estimate of the welfare losses for the consumers of railroad services (i.e. agricultural producers and final consumers).

Limited Arbitrage between Equity and Credit Markets

We document that short-horizon pricing discrepancies across firms' equity and credit markets are common and that an economically significant proportion of these are anomalous, indicating a lack of integration between the two markets. Proposing a statistical measure of market integration, we investigate whether equity-credit market integration is related to impediments to arbitrage. We find that time variation in integration across a firm's equity and credit markets is related to firm-specific impediments to arbitrage such as liquidity in equity and credit markets and idiosyncratic risk. Our evidence provides a potential resolution to the puzzle of why Merton model hedge ratios match empirically observed stock-bond elasticities (Schaefer and Strebulaev, 2008) and yet the model is limited in its ability to explain the integration between equity and credit markets (Collin-Dufresne, Goldstein, and Martin, 2001).

Effects of Decimalization and Regulation FD on Market Integration

A sizable body of literature exists on the information share of markets, when a single asset or identical assets are traded in several markets. Most of these studies focus on the price discovery process and the information contribution of the individual markets. However the idea that the information share can be used as a measure of market integration (or fragmentation) has not been adequately explored. Regulatory and microstructure changes such as Fair Disclosure and Decimalization of tick-size have an effect on the information dissemination and price discovery. More efficient price discovery and greater information parity are some of the justifications offered for the introduction of such measures. This article measures the effects of such changes on the information share, speed of adjustment impulse response functions, and tests whether such regulations have achieved greater informational parity and market integration.

Estimating the Degree of Market Integration

AbstractExisting 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.

What are Borders Made of? An Analysis of Barriers to European Banking Integration

Linguistic and cultural differences, different legal and supervisory frameworks, and relationship lending have been repeatedly mentioned as barriers to European retail banking integration. We investigate whether these barriers have affected integration within national boundaries, using an index of localism of regional banking systems as a measure of market integration. If local banks are established and flourish because asymmetric information makes entry difficult for non-incumbents (Dell'Ariccia, 2001) or regulatory and governance rules prevent entry from outside (Berger et al., 1995), we should find a significant relationship between indicators of these barriers and measures of the localism of banking systems. Our results show that this is indeed the case for asymmetric information, while findings are more blurred for supervisory practices.

Characterizing World Market Integration through Time

AbstractInternational asset pricing models suggest that barriers to portfolio flows and availability of market substitutes affect the degree and time variation of world market integration. We use GARCH-in-mean methodology to assess the evolution in market integration for eight emerging markets over the period 1977–2000. Our results suggest that while local risk is still a relevant factor in explaining time variation of emerging market returns, none of the countries appear to be completely segmented. We find that there are substantial crossmarket differences in the degree of integration. The evolution toward more integrated financial markets is apparent although at times we do observe reversals. In addition, we provide clear evidence on the impropriety of directly using correlations of market-wide index returns as a measure of market integration. Finally, financial market development and financial liberalization policies play important roles in integrating emerging markets.

Information Processing and Measures of Integration: New York, London and Tokyo

Equity markets do not pass all overnight information into prices instantaneously at the opening of trade. The New York market takes up to 30 minutes after the opening time to absorb overnight foreign news, Tokyo takes about 90 minutes, and London about 120 minutes on average. These delays in information absorption are not commercially significant but do have implications for measures of market integration. We adjust intra-daily return series for non-instantaneous news absorption and then use adjusted series to predict opening price variation in three major equity markets. Because the adjusted daytime returns series are uncorrelated, we can accurately measure the size, and identify the sources, of transmissions. Overnight news, as represented by foreign daytime returns, explains 12% of opening price variation (close-open returns) in New York, 14% in Tokyo and 30% in London. For New York and Tokyo, the largest influences come from the market that trades immediately prior (London and New York respectively) whereas opening price variation in London is linked closer with New York than Tokyo. Foreign volatility spillovers are also significant, and subject to asymmetry effects.

Semiglobalization and international business strategy

If markets were either completely isolated by or integrated across borders, there would be little room for international business strategy to have content distinctive from ‘mainstream’ strategy. But a review of the economic evidence about the international integration of markets indicates that we fall in between these extremes, into a state of incomplete cross-border integration that I refer to as semiglobalization. More specifically, most measures of market integration have scaled new heights in the last few decades, but still fall far short of economic theory's ideal of perfect integration. The diagnosis of semiglobalization does more than just supply a relatively stable frame of reference for thinking about the environment of cross-border operations. It also calls attention to the critical role of location-specificity in the prospects of distinctive content for international business strategy relative to mainstream business and corporate strategy. In addition, it flags factors/products subject to location-specificity as being salient from the perspective of international business. Finally, it highlights the scope for strategies that strive to capitalize on the (large) residual barriers to cross-border integration, as well as those that simply try to cope with them.