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

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.