Non-Linear Spatial Price Transmission on the Turkish Wheat Market

Agricultural production is spread all over Turkey and the considerably differentclimatic and topographical conditions among the provinces lead to highly diversified agricultural production. Thus, is it reasonable to assume an integrated marketall over Turkey? This paper analyzes the spatial price transmission among 28Turkish provinces. Applying a bivariate threshold vector error correction modelallows to account for transaction costs without having direct information of these.The results suggest that there is an inner cluster of several provinces that can betreated as one large integrated market. However, the degree of market integrationdecreases in the outer provinces of Turkey. Although transaction costs are significantfor nearly all provinces, Ankara clearly stands out, showing transactioncosts with every other province. The observed economic variables fail to explainthis behavior. Hence, social networks as relevant factor for the interactions onthe Turkish wheat market come into play. A band of non-adjustment is only establishedfor a minority of those pairs that show a threshold. Thus, one has tocritically assess the applicability of such a threshold model to analyze the marketbehavior of spatial price transmission.