Integration in European coal markets, 1833-1913

by John E. Murray (Rhodes College) and Javier Silvestre (University of Zaragoza, Instituto Agroalimentario de Aragón, and Grupo de Estudios ‘Población y Sociedad’)

The full article from this blog was published on The Economic History Review and it is available here

The availability of coal is central to debates about the causes of the Industrial Revolution and modern economic growth in Europe.  To overcome regional limitations in supply,  it has been argued that coal could have been transported. However, despite references to the import option and transport costs, the evolution of coal markets in nineteenth-century Europe has received limited attention.  Interest in the extent of markets is motivated  by their effects on economic growth and welfare ( Federico 2019;  Lampe and Sharp 2019).

The literature on market integration in nineteenth-century Europe mostly refers to grain prices, usually wheat. Our paper extends the research to coal, a key commodity. The historical literature of coal market integration is scant—in contrast to the literature for more recent times (Wårell 2006; Li et al. 2010; Papież and Śmiech 2015). Previous historical studies usually report some price differences between- and within countries, while a  few provide statistical analyses, often  applied to a narrow geographical scope.

We examine intra- and international market integration in the principal coal producing countries, Britain, Germany, France and Belgium.  Our analysis includes three, largely  non-producing, Southern European countries, Italy, Spain and Portugal—for which necessary data are available. (Other countries were considered but ultimately not included). We have created a database of (annual) European coal prices at different spatial levels.

Based on our price data,  we consider prices in the main consumer cities and producing regions and estimate specific price differentials between areas in which the coal trade was well established. As a robustness check, we estimate trends in the coefficient of variation for a large number of markets. For the international market, we estimate price differentials between proven trading markets. Given available data,  focus on Europe’ main exporter, Britain, and the main import countries –  France, Germany, and Southern Europe. To confirm findings, we estimate the coefficient of variation of prices throughout coal producing Europe.

To estimate market integration within coal producing countries, we utilise Federico’s (2012) proposal for testing both price convergence and efficiency—the latter referring to a quick return to equilibrium after a shock. For the international market, we again estimate convergence equations. For selected international routes, and according to the available information, we complete the analysis with an econometric model on the determinants of integration—which includes the ‘second wave’ of research in market integration (Federico 2019). Finally, to verify our findings, we apply a variance analysis to prices for the producing countries.
Our results, based on quantitative and qualitative evidence, may be summarized as follows. First, within coal-producing countries, we find evidence of price convergence. Second, markets became more ‘efficient’ over time – suggesting reductions in information costs. Nevertheless, coal prices were subject to strong fluctuations and shocks, in relation to ‘coal famines’. Compared to agricultural produce, the process of integration in coal appears to have taken longer. However, price convergence in coal tended to stabilize at the end of our period, suggesting insignificant further reduction in transports costs and the existence of product heterogeneity. Finally, our evidence indicates that cartelization in Continental Europe from the late nineteenth century had limited impact on price convergence.

Turning to the international coal market, our econometric results confirm price convergence between Britain and importing countries. Like domestic markets, the speed with which price differentials between Britain and Continental Europe were eroded declined from the 1900s. Further, market integration between Britain and Continental Europe appears to have been largely influenced by changes in transportation costs, information costs and protectionism. Extending our analysis to other countries, (with, admittedly, limited data) suggests that price convergence started later in our period. Finally, our results indicate the limited ability of cartels to restrict competition beyond their most immediate area of influence.
Overall, we observe integration in both the domestic and international coal market. Future research might consider expanding the focus to other cross-country, Continental, markets to acquire a deeper comprehension of the causes and effects of market integration.

To contact the authors:

Javier Silvestre, javisil@unizar.es

References

Federico, G., ‘How much do we know about market integration in Europe?’, Economic History Review, 65 (2012), pp. 470-97.

Federico, G., ‘Market integration’, in C. Diebolt, and M. Haupert, editors, Handbook of Cliometrics (Berlin, 2019).

Lampe, M. and Sharp, P., ‘Cliometric approaches to international trade’, in C. Diebolt, and M. Haupert, editors, Handbook of Cliometrics (Berlin, 2019).

Li, R., Joyeux, R., and Ripple, R. D., ‘International steam coal market integration’, The Energy Journal 31 (2010), pp. 181-202.

Papież, M. and Śmiech, S., ‘Dynamic steam coal market integration: Evidence from rolling cointegration analysis’, Energy Economics 51 (2015), pp. 510-20.

Wårell, L., ‘Market integration in the international coal industry: A cointegration approach’, The Energy Journal 27 (2006), pp. 99-118.