Economic Integration in Interwar Poland - A Threshold Cointegration Analysis of the Law of One Price for Poland (1924-1937)

In this paper we study the issue of economic integration in Poland between 1924 and 1937 by means of a threshold cointegration analysis of the law of one price. We find that the interwar economy can be regarded as integrated but with obvious restrictions which refer to the existence of relevant transaction costs for arbitrage and differences in the level of prices between cities. Moreover, the former partition borders within Poland did not affect economic integration suggesting that the integration policy after the reunification of Poland in 1919 was successful. However, we are not able to assess the impact of the aggregate price level which changed strongly during our sample period.