Trade and Markets

Question 1

Transport costs and the geography of arbitrage in 18th century China

Answer 1

Authors want to understand how correlated grain prices were in markets as a measure of trade and market efficiency

Key Findings
- For inland prefectures, 1km increase -> price correlation decrease by 0.393
- For coastal prefectures, 1km increase -> price correlation decrease by 0.155.
- Severe weather shock: price correlations in coastal regions were more impacted than price correlations in inland regions (storage as a market incentive response).
- Lower coef. of variation for coastal regions, more price stability in inland regions

Question 2

Markets in China & Europe on the eve of the Industrial Revolution

Answer 2

Why did the IR occur in Europe rather than China? Authors compare price cointegration on agricultural products between Europe and China before IR.

4 ways the Qing state supported grain trade:
1. Created & maintained transport routes
2. Organising local communities in the upkeep of routes
3. Contributed ~15% of China’s LD trade via gov. shipments
4. Collected information about prices, harvest outcomes & agricultural practices

Key Findings
- Chinese price cointegration exceeded West Europe price integration
- England’s price integration was the best in the period at all distances
- Variation in methods of farming in rice vs wheat may tend price integration results in China’s favour due to irrigation > rainfall in terms of volatility.
- Storage skews results in the entire sample. Evidence for storage in China but not Europe.
- Provinces who stored had less price cointegration than provinces who traded, suggesting trading > storage to smooth consumption.

Cannot reject the hypothesis that trade efficiency is a precondition for growth since England was the leader and also experienced IR.
Authors posit the reasons for a lack of Chinese IR was not due to a lack of trade or a lack of constraints on the executive.