Market integration for agricultural output markets in Peru: the role of public infrastructure

Abstract

This paper shows the impact that investment in infrastructure may have on the efficiency of agricultural products markets. Using daily price series for the most important agricultural crop in Peru (potato), in 10 cities from 1995 to 2001, we show that there is enough evidence to conclude that agricultural markets are spatially integrated. However we also show that there is short term disequilibria that affect the efficiency with which price information is transmitted across markets. A Threshold Cointegration Model is used to asses 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 was expected, the paper shows that distance and geographic differences are important factors affecting spatial integration and efficiency between markets. However, other elements susceptible of government intervention, such as availability of information (access to local media and telecommunications facilities), road density or access to wholesale markets, are key factors for the reduction of transaction costs and the improvement of spatial integration between markets.Infrastructure, Investment, Rural, Peru