Rank tests for price convergence in Australian beverage markets

ABSTRACT

This article examines the price convergence of beverage products within Australia in order to assess the efficacy of intranational cross-border movements of products under the Australia’s Mutual Recognition Agreement. Since the cointegrating relationship between product prices may not be exact or linear, we adopt the rank tests for analysis which do not require prior knowledge and specification of the linear or nonlinear functional form. Our results validate the price convergence of all beverage products within Australia, with the exception of a few regions in the milk market. Furthermore, a subset of the cointegration relationships exhibits nonlinear long-run price co-movements.

KEYWORDS:

• Beverages
• nonlinear
• nonparametric
• price convergence
• rank tests

JEL CLASSIFICATION:

• C10
• C13
• C22

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the Research Grants Council, University Grants Committee of the Hong Kong Special Administrative Region [UGC/FDS15/B06/14].