Testing for regional convergence of agricultural land prices

Abstract

The focus of this paper is on spatial market integration in agricultural land markets. We scrutinize the applicability of the law of one price to land markets and distinguish between absolute and relative versions of this "law". Panel data unit root and stationarity tests are applied to land sale prices in the German state Lower Saxony. Three main clusters with different price developments are detected. Our results indicate that the law of one price holds only locally due to structural differences among regions.

The Spatial and Temporal Diffusion of Agricultural Land Prices

“…However, this does not imply that land prices in all counties necessarily converge to the same level or a constant difference even after adjusting for quality differences. This result confirms earlier findings by Yang et al (2017) that local land markets may exhibit distinct convergence clubs. Not surprisingly, the adjustment rates that we measure are smaller compared with commodity markets and similar to those of other real estate markets.…”

“…Italy also witnessed an uneven price development in the farmland market: Land values almost doubled from 1992 to 2010 in Northern Italy, while in Central and Southern regions land values increased by only 15-30% (Mela et al 2012). Yang et al (2017) show that even on a regional scale, agricultural land markets may exhibit different dynamics. Potential causes of diverging land prices are different agricultural production systems and disparities in regional growth in conjunction with the limited mobility of agricultural production.…”

“…They find that the Spanish land market is spatially integrated and interpret this finding as an indicator of land market efficiency. More recently, Yang et al (2017) apply second-generation panel unit root tests in an iterative procedure to identify "convergence clubs" of regional land markets that share the same price development. Though panel unit root tests give a first impression of the similarity of price trends in different regional land markets, they do not allow for a complete description of price diffusion processes.…”

Land price diffusion across borders – the case of Germany

“…Their analysis is based on aggregated data and does not take into account heterogeneity of land characteristics and structural breaks in the price series that may bias the test results. More Yang, Ritter, and Odening (2017) explore the spatial pattern of land price development. Based on county-level data for the German state Lower Saxony, they employ stationarity tests and unit root tests to examine whether relative prices between counties converge.…”

On the role of domestic and international financial cyclical factors in driving economic growth

“…Based on county-level data for the German state Lower Saxony, they employ stationarity tests and unit root tests to examine whether relative prices between counties converge. Using a sequential testing procedure allows Yang, Ritter, and Odening (2017) to identify several distinct convergence clusters. The closest study to ours investigates the impact of a language border on spatiotemporal price diffusion of house prices in Belgium (Helgers and Buyst 2016).…”