Market Emergence and Transition: Transaction Costs, Arbitrage, and Autarky in China’s Grain Markets.

Using tri-monthly Chinese provincial grain prices from 1988 to 1995, we estimate a parity-bounds model of inter-regional trade for four sub-periods to characterize how multiple aspects of market performance change during the process of economic transition. For each period, we estimate the extent to which arbitrage opportunities are realized by traders, the transaction costs between location pairs, and the likelihood that regions do not trade. Trade restrictions cannot explain the pattern of uneven market development over time. Infrastructure bottlenecks, managerial incentive reforms, and production specialization policies all were likely important factors affecting market performance.Copyright 2002 American Agricultural Economics Association. This is a pre-copyedited, author-produced PDF of an article accepted for publication in American Journal of Agricultural Economics following peer review. The definitive publisher-authenticated version (American Journal of Agricultural Economics, 84 (1), 67 - 82) is available online at: http://dx.doi.org/10.1111/1467-8276.0024