Quarterly Journal of International Agriculture No. 1/08
Market integration for agricultural output markets in Peru:
the role of public infrastructure
Javier A. Escobal
Grupo de Análisis para el Desarrollo (GRADE), Lima, Peru
Arturo Vásquez Cordano
Colorado School of Mines, Golden, USA
Abstract
This paper shows the impact that investment in infrastructure may have
on the efficiency of agricultural products markets. Using daily price
series of one of the most important crops in Peru - potato - collected
from 10 cities during the period January 1995 through May 2001, we show
that there is enough evidence to conclude that potato agricultural
markets are spatially integrated. However, there are short term
disequilibria that affect the efficiency with which price information
is transmitted across markets. A Threshold Error Correction Model is
used to assess the speed of adjustment towards the equilibrium, the
presence of transaction costs, and the probabilities of successful and
failed arbitrage between spatially distributed markets. As expected,
distance and geographic differences are important factors affecting
spatial integration. Nonetheless, other elements susceptible of
governmental intervention, such as availability of information (access
to local media and telecommunications facilities), road density, or
access to wholesale markets, are key elements to reduce transaction
costs and improve spatial integration among markets.
Keywords: market integration, infrastructure, potatoes, Peru
JEL: R12, D23, H54, Q11, Q13
Vol. 47 (2008), No. 1: 25-47