The Extent, Pattern, and Degree of Market Integration: A Multivariate Approach for the Brazilian Rice Market

The extent, pattern, and degree of integration are analyzed in a multivariate system with cointegrating restrictions. The extent of the market is found by identifying locations that are linked by trade and where prices share identical long run information (permanent component). The pattern of integration characterizes interdependence and is analyzed by estimating a vector error correction model. The degree of integration is calculated with persistence profiles of the long run relations. We demonstrate that bivariate models are inadequate for capturing the spatial dynamics of price adjustment. The methodology is applied to the Brazilian rice market and policy implications are discussed.