INTER-REGIONAL PRICE TRANSMISSION IN THE BRAZILIAN SOYBEAN MARKET

Abstract

This study estimates the price transmission elasticities between pairs of soybean prices for the states of Mato Grosso and Paraná; Mato Grosso and Rio Grande do Sul; and Paraná and Rio Grande do Sul in order to test the validity of the Law of One Price among those markets. The data correspond to the monthly average soybean prices for those states, extracted from the Center of Advanced Studies for Applied Economy (CEPEA) of ESALQ / USP, over the January, 2001 to February, 2008 period. The analytical framework includes tests for unitary root and Johansen´s co-integration, the estimation of impulse-response function, the decomposition of the variance of the forecasting error and the vector error correction model (VEC). The results indicate that the variations of prices in the long run, occurred in Rio Grande do Sul, are almost fully transmitted to the soybean prices in Paraná and Mato Grosso. Thus, those markets could be considered perfectly integrated if the hypothesis test of perfect integration between those markets was rejected under the restrictions imposed on the relationship coefficient in the long run. Therefore, the Law of the One Price was not perfectly validated for those soybean markets.