INTEGRATION IN BENIN MAIZE MARKET: AN APPLICATION OF THRESHOLD COINTEGRATION ANALYSIS

The degree to which markets are spatially efficient has important implications for market liberalization and other policy reforms. After several attempts to control and regulate the marketing of maize in Benin, a liberalized free-market system was finally adopted in 1990. It was assumed that a free-market system would perform more efficiently and enhance maize market integration compared with the more government oriented systems of the past. However, trade barriers still exist in the form of traders' associations across market locations. Recent market integration literature has focused on the influence of transaction costs and threshold effects on tests for integration. Hansen and Seo's two regime threshold cointegration model is used to analyze the degree of integration between seven Benin maize markets for the September 1998 to September 2001 period. We find mixed evidence of threshold cointegration. Threshold effects are found in thirteen out of twenty-one market pairs. However, threshold estimates are not consistent with observed transaction costs and further investigation of error-correction parameter estimates cast some doubt as to the validity of some of the threshold results. We conclude that the two regime threshold model may not adequately capture the trade barriers associated with the traders' associations.