Lee, Chin and Habibullah, Muzafar Shah (2008): Price convergence and market integration: evidence from Malaysia. Published in: International Journal of Economics and Management , Vol. 2, No. 2 (2008): pp. 137-146.
Download (99kB) | Preview
The purpose of this study is to assess the markets integration within Malaysia by examine the price convergence across Peninsular Malaysia, Sabah and Sarawak. Disaggregate monthly price data for various types of goods or services in Peninsular Malaysia, Sabah and Sarawak were utilized. Levin and Lin (1993) panel unit root test was employed to test whether the price of various types of goods among 3 provinces/states in Malaysia are stationary. The result of panel unit roots test showed that in more than half of the cases, we are able to reject the null hypothesis of unit root. In conclusion, we found considerable evidence of price convergence for majority of price groups in Malaysia. With regard to the degree of persistence of deviations from purchasing power parity after a shock, our empirical estimates showed a half-life of 6.75 years for Malaysia. Among the commodity/price groups, half-life for the tradable goods is roughly 1-2 years and for nontradable goods is about 10 years. The implication of price convergence in Malaysia is the evidence of increase market integration among Peninsular Malaysia, Sabah and Sarawak.
|Item Type:||MPRA Paper|
|Original Title:||Price convergence and market integration: evidence from Malaysia|
|Keywords:||Consumer Price Indices, price convergence, half-life, panel unit root test, Malaysia|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation|
|Depositing User:||Chin Lee|
|Date Deposited:||01. Aug 2012 17:13|
|Last Modified:||13. Feb 2013 23:04|
Carrion-i-Silvestre, J. L., Barrio, T. D. and López-Bazo, E. (2004) Evidence on the Purchasing Power Parity in Panel of Cities, Applied Economics, 36, 961 – 966.
Cecchetti, S, G., Mark, N. C. and Sonora, R. J. (2002) Price Level Convergence Among United States Cities, International Economic Review, 43, 1081–99.
Ceglowski, J. (2003) The Law of One Price: Intranational Evidence for Canada, Canadian Journal of Economics, 36, 373-400.
Chaudhuri, K. and Sheen, J. (2004) Purchasing Power Parity across States and Goods within Australia, Economic Record, 80, 314-329.
Chen, L. L. and Devereux, J. (2003) What Can US City Price Data Tell Us about Purchasing Power Parity? Journal of International Money and Finance, 22, 213-222.
Engel, C. and Rogers, J. (1996) How Wide is the Border, American Economic Review, 86, 1112–1125.
Engel, C. and Rogers, J. (2001) Violating the Law of One Price: Should We Make a Federal Case Out of It, Journal of Money Credit and Banking, 33, 1–15.
Esaka, T. (2003) Panel Unit Root Tests of Purchasing Power Parity between Japanese Cities, 1960-1998: Disaggregated Price Data, Japan and the World Economy, 15, 233-244.
Giovannini, A. (1988) Exchange Rates and Traded Goods Prices, Journal of International Economics, 24, 45-68.
Isard, P. (1977) How Far can We Push the 'Law of One Price', American Economic Review, 67, 942-948.
Jenkins, M. A. (1997) Cities, Borders, Distances, Non-Traded Goods and Purchasing Power Parity, Oxford Bulletin of Economics and Statistics, 59, 203–213.
Parsley, D. C. and Wei, S. J. (1996) Convergence to the Law of One Price without Trade Barriers of Currency Fluctuations, The Quarterly Journal of Economics, 111, 1211–36.
Sonora, R. J. (2005) City CPI Convergence in Mexico, Review of Development Economics, 9, 359-367.