SPATIAL INTEGRATION IN THE BRAZILIAN BEEF CATTLE MARKET: AN ANALYSIS WITH THRESHOLD COINTEGRATION

Abstract

The traditional studies of market integration, based on the cointegration methodology, consider that there are no discontinuities in the process of price transmission between spatially separated localities. However, the existence of transaction costs may create asymmetries or even block the process of integration. The main objective of this paper was to analyze the possible effects of transaction costs in the price adjustment mechanism of market integration of beef cattle in Brazil using models of cointegration with threshold, namely, TAR and M-TAR. It was used data on prices received by producers in the most important states during the period of august of 1994 through august 2008. Results indicated state market integration but with significant effect of transaction costs since negative shocks or shocks of low magnitude are eliminated distinctly from positive shocks. In these cases the benefits for transaction coming from prices variations are lower than the adjustment costs resulting in impediment of the market integration process.