Spatial Integration at Multiple Scales: Rice Markets in Madagascar

The dramatic increase in the price of rice and other commodities over the past year has generated new interest in how these markets work and how they can be improved. This paper uses an exceptionally rich data set to test the extent to which markets in Madagascar are integrated across space at different scales of analysis and to explain some of the factors that limit spatial arbitrage and price equalization within a single country. We use rice price data across four quarters of 2000-2001 along with data on transportation costs and infrastructure availability for nearly 1400 communes in Madagascar to examine the extent of market integration at three different spatial scales— sub-regional, regional, and national—and to determine whether non-integration is due to high transfer costs or lack of competition. The results indicate that markets are fairly well integrated at the sub-regional level and that factors such as high crime rates, remoteness, and lack of information are among the factors limiting competition.