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The Law of One Price: Developed and Developing Country Market Integration

Published online by Cambridge University Press:  28 April 2015

Jian Yang ,
David A. Bessler  and
David J. Leatham
Jian Yang
Affiliation:
Department of Accounting, Finance and Information Systems, Prairie View A&M University
David A. Bessler
Affiliation:
Department of Agricultural Economics, Texas A&M University
David J. Leatham
Affiliation:
Department of Agricultural Economics, Texas A&M University
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Abstract

The Law of One Price (LOP) is important to models of international trade and exchange rate determination. This study investigates a variant of the LOP applied to developed and developing countries. The competing hypotheses are (1) that one price prevails in both developed and developing countries and (2) that one price prevails in developed countries and another single price in developing countries. Using data from an internationally competitive commodity (soybean meal), we found evidence favors the first hypothesis, although two large developing countries under study are active participants in regional trade integration, which may bias them against the first hypothesis.

Keywords

law of one pricedeveloping countrieserror-correction modeldirected graphs
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 32 , Issue 3 , December 2000 , pp. 429 - 440
Copyright
Copyright © Southern Agricultural Economics Association 2000

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