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Market Integration

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Handbook of Cliometrics

Abstract

This chapter outlines the main advances in the literature on market integration in the last 5 to 10 years. After a short review of the definition of market integration and of the main statistical tools to measure it, each of the three following section addresses one major issue. Section “The First Wave: Measurement” deals with the measurement of integration, updating and expanding the earlier review of Federico (2012) to integration in non-European countries and to transoceanic integration. Section “The Second Wave: The Causes of Integration” surveys the literature on causes of integration, arguing that changes depended mostly on political decisions about barriers to trade, with a substantial contribution of technical progress in the nineteenth and twentieth century. Finally, Section “The Third Wave: The Effects of Integration” deals with the effects of integration. Most papers quote the benefits from integration in the motivation for the choice of the issue, but there are very few and very partial attempts to measure them. Section “Conclusion: Taking Stock” concludes with a short summary of the main findings, stressing the relevance of recent work to integrate spatial and intertemporal arbitrage.

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Notes

  1. 1.

    Note that a reduction in commodity gap increases ceteris paribus the likelihood of co-movements as it shrinks the scope for independent movements. However, this appears as an increase in efficiency only because co-movement measures are imperfect measure of efficiency.

  2. 2.

    As stated earlier, in principle, the TAR models should solve the problem by endogenously selecting the “normal” observations to estimate the equilibrium commodity points. However, the results can be interpreted as effective equilibrium transaction costs on the twin assumptions of efficient markets and constant transaction costs in the period of estimation.

  3. 3.

    Let’s assume that a war started in – say – Germany. Newspaper would transmit the news roughly at the same time in Amsterdam and London, and agents were likely to react in the same way by raising prices. This movement would appear as a common shock in the Brunt and Cannon (2014) framework and would increase the share of explained variance in DFA (Federico et al. 2018). In this case, there would be no market-specific shock to adjust to. Newspapers did not cut the time of reaction to any such market-specific shock, which still depended on the physical transmission of pieces of paper in the days before the telegraph.

  4. 4.

    The figure is obtained assuming that value added accounted for 90% of the export price of cotton and wheat, that wheat and cotton accounted for half of American exports, and that the export/GDP ratio was about 0.05.

  5. 5.

    Agriculture produced about 27% of GDP in 1890, and the additional gross output corresponded to about 18% of GDP (assuming a GDP/output ratio around 0.90).

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Authors and Affiliations

  1. Department of Economy and Management, University of Pisa, Pisa, Italy

    Giovanni Federico

  2. CEPR, London, UK

    Giovanni Federico

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  1. Giovanni Federico
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Correspondence to Giovanni Federico .

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Editors and Affiliations

  1. BETA/CNRS, University of Strasbourg, Institute for Advanced Study, Strasbourg, France

    Claude Diebolt

  2. University of Wisconsin – La Crosse, La Crosse, WI, USA

    Michael Haupert

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Federico, G. (2019). Market Integration. In: Diebolt, C., Haupert, M. (eds) Handbook of Cliometrics. Springer, Cham. https://doi.org/10.1007/978-3-030-00181-0_68

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