Market Reforms, Spatial Price Dynamics, and China's Rice Market Integration: A Causal Analysis with Directed Acyclic Graphs

Abstract

Previous studies on post-reform market performance of Chinese grain markets have produced mixed results. This paper employs province-level price data to determine if China's food market liberalization policies in the 1990s resulted in interregional rice market integration. Furthermore, this study extends the literature on spatial market integration by augmenting multivariate cointegration modeling techniques with directed acyclic models (DAGs), a recently developed statistical method for analyzing contemporaneous causal relationships. While the empirical results confirm the existence of strong market linkages subsequent to the reforms of the early 19902, the linkages became less as the Chinese government reversed several reform policies in the mid-1990s. Overall, the empirical evidence from this study indicates that China's agricultural market policy reforms have been relatively effective.

Keywords

• directed acyclic graphs
• grain prices
• interregional trade
• market liberalization
• spatial price dynamics