Transport Costs and the Geography of Arbitrage in Eighteenth-Century China

1. Transport Costs and the Geography of Arbitrage in Eighteenth-Century China 10862801冯仕亮 Nov.26,2009

2. Introduction • The progressive reduction in transport costs was a major factor in the growth of the United States and Europe(Douglas North,1958) • But whether access to commodity markets is a precondition for market development and economic growth? • China: relationship between commodity trade and market development. • Also can help understanding structural change and economic growth. • Trade: interregional market integration + • Storage: intertemporal market integration + • Responsiveness of prices to local supply shocks • The importance of trade to growth has been overestimated • Two mechanisms: • China’s markets appear to have been more integrated • Inter-temporal effects are important substitutes for trade

3. I. Commodity Trade and Transportation in Eighteenth-Century China • The 18th-century of the Qing dynasty: domestic stability • Foreign trade: largely restricted • Domestic interregional trade: natural waterways • Major division in transport costs : between land and water • Significant trade activity along water routes, most by private merchants. • However, less is known about the inland economy… • Trade data in inland areas :neither available nor feasible to estimate • Also, trade volume not a perfect indicator of integration

4. II. Price Variation, Weather, and Storage • Use price and weather data to examine the effects of intertemporal shocks • 10 provinces, in 1742-1795, 121 prefectures • Prices: average and variation • Weather: index with 5 gradations • Storage: quantities and costs • The identification of trade versus storage effects

5. III. A Benchmark Model of Trade and Storage • Shocks: exogenous, time-independent • Consumer demand: stable • Traders and storers: price-takers, RE • Competitive equilibrium:( no arbitrage) • Only storage: intertemporal smoothing • When trade is feasible: intra-temporal smoothing

6. IV. Empirical Results • A. Interregional Market Integration and Common Weather Shocks

7. IV. Empirical Results

8. IV. Empirical Results

9. IV. Empirical Results

10. IV. Empirical Results • B. Intertemporal Market Integration

11. IV. Empirical Results • A. Interregional Market Integration and Common Weather Shocks • B. Inter-temporal Market Integration • River and coastal regions have an advantage in trade; • Semi-inland and inland regions have a comparative advantage in storage to cushion the effects of worst-weather supply shocks

12. IV. Empirical Results • C. Carryover from Harvest to Harvest Versus Carryover Within the Harvest Year

13. IV. Empirical Results

14. IV. Empirical Results • D. Storage Patterns Across Prefectures

15. V. Conclusion • Interregional and inter-temporal market integration existed in 18th –century China: • Markets in preindustrial societies more developed than preciously acknowledged • Geographic differences could create large differences in the prevailing type of market institutions • The emergence of markets does not seem to be depend on whether or not low transport costs are available • Failure to account for storage and other types of markets that substituted for trade would in general lead to an overestimate of the importance of the latter