Distance and Border Effects on Price Transmission: A Meta-analysis

Abstract

Using price transmission estimates for 1,189 cereal market pairs extracted from 57 published studies in a meta-analysis, we examine whether geographic distance and separation by an international border affects the strength and speed of price transmission. Our findings indicate that a border reduces the likelihood that two cereal prices will be cointegrated by 23%, and each additional 1,000 km of distance reduces the probability of cointegration by 7%. The speed of price transmission is on average 13 percentage points per period faster between prices that are located within the same country compared with cross-border price pairs. Our meta-analysis also indicates that increasing distance strongly reduces the speed of price transmission on domestic markets, but that the effect of distance on the speed of transmission is considerably weaker for trade over longer international distances. Overall, these results confirm expectations and complement the findings in the trade literature that borders and distance affect trade flows and price dispersion.