Applying cointegration and error correction to measure trade linkages: maize prices in the United States and Mexico

Abstract

The impact of U.S.-grown maize on Mexican markets is a subject of heated debate, and is complicated by limited substitution between white and yellow maize as well as regional price differences within Mexico. This article improves on previous analyses using a detailed data set of white maize prices reported weekly in 11 states across Mexico from 1998 through 2005. Using cointegration analysis and the error-correction model, we find that prices between the United States and Mexico do not share a common long-run relationship. Within Mexico, prices in Michoacán and Oaxaca are only weakly related with prices in neighboring states, whereas prices in Sinaloa and Jalisco exert considerable influence on prices elsewhere in Mexico. We conclude that, despite North American Free Trade Agreement (NAFTA), white maize prices in Mexico are determined by local conditions including particularly the degree of integration to other regions within Mexico. Copyright (c) 2008 International Association of Agricultural Economists.

An Econometric Estimation of The World Price Leadership Impact on The Production and Export of Peanut of A.R.E التقدیر القیاسى لأثر القیادة السعریة العالمیة على إنتاج وتصدیر الفول السودانى بجمهوریة مصر العربیة

“…The long-run causality between price variables is investigated by applying Wald test for the coefficients of α, which are referred to as weak exogeneity tests. This causality is typically interpreted as price leadership (Motamed, Foster, and Tyner, 2008).…”

Testing the Performance of Fresh Tomato Markets Following Import Trade Liberalization in Ghana:

“…For this reason, tomato prices in the producer and consumer markets do not drift apart in the long run (Motamed, Foster and Tyner, 2008). In this case, price changes resulting from random market shocks on any producer market will be expected to reflect as changes in the prices of the commodity in all other markets, assuming unchanged transaction costs.…”

Cotton market integration and the impact of China's new exchange rate regime

“…Generally, economists consider price‐based market integration tests to be more definitive and reliable than the quantity‐based ones (Ghemawat, 2001; Vinuya, 2007). The primary method used for studying market integration is cointegration analysis (e.g., Alexander and Wyeth, 1994; Baffes, 1991; Motamed et al, 2008; Warell, 2006). A great number of such studies have shown a long‐run linkage among prices of selected agricultural commodities (e.g., Booth and Ciner, 2001; Liu, 2005; Malliaris and Urrutia, 1996).…”