Commodity market integration 1850 - 1913 : evidence from Britain and Germany

Abstract

In a sample that contains annual prices of 39 selected commodities in Britain and Germany in the period 1850 to 1913 substantial evidence of well integrated commodity markets is found. The degree of integration is not universal across markets and varies over time, however. Absolute price variability was in general decresing over the period, indicating more closely integrated markets. But the reintroduction of tariffs in Germany beginning in 1879 implied that this trend was broken for a number of commodities. Nevertheless, once the impact of tariffs is accounted for, grain market prices are well synchronized. In contrast, markets for animal foodstuffs appear not to be integrated, which is to be expected given the existence of non-tariff barriers affecting meat and livestock markets. The price movements of non-ferrous metals, many textiles and some other raw materials are in accordance with the law of one price. The speed of adjustments of prices, measured by estimates of the half-life of LOP deviations, is a little more than one year, which is substantially lower than what is found in many other studies of market integration.