Bulk Commodities and the Liverpool and London Markets of the Mid-19th Century

James M. Nason and Donald G. Paterson
Working Paper 2003-29a
October 2003 (Revised March 2004)

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The authors study British commodity markets and the extent to which prices in these markets were integrated in the short run and converged in the long run. Their historical data are new. It consists of five price indices for identically described goods—iron products, wood products, processed foods, red wheat, and flour—in Liverpool, the bulk commodity port of mid-19th century Great Britain, and London. Tests for cointegration reveal long-run convergence among all the Liverpool-London price pairs. The authors also report that markets in processed food, red wheat, and flour were integrated in the short-run because they share a serially correlated common feature. This common feature implies that Liverpool and London prices responded to common cyclical shocks at the same moment in time. They find the impact of this shock is short-lived because the trend shock explains more than 80 percent of processed food and red wheat price fluctuations in Liverpool and London and Liverpool flour price movements.

JEL classification: N13, N73, E31

Keywords: Liverpool, London, prices, markets, commodities, bulk trade, 19th century, wheat, flour, cointegration, cycles, common features

The authors owe a particular debt of gratitude to our colleague Ronald A. Shearer, who helped assemble the database used in this study. They also wish to acknowledge our colleagues of the Economic History workshop at the University of British Columbia. The authors would also like to thank Patrick Coe, Jan Tore Klovland, James MacKinnon, and Chris Minns for helpful comments. A version of this paper was presented at the Meetings of the Canadian Economic Association. Financial aid from the SSHRCC and UBC Small Grants funded much of this work. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.

Please address questions regarding content to James M. Nason, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309, 404-498-8891, jim.nason@atl.frb.org, or Donald G. Paterson, Department of Economics, University of British Columbia, 997-1873 East Mall, Vancouver, British Columbia, Canada, VGT 1Z1, 604-822-5226, paterson@arts.ubc.ca.