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Market Integration in the International Coal Industry: A Cointegration Approach

Abstract:
The purpose of this paper is to test the hypothesis of the existence of a single economic market for the international coal industry, separated for coking and steam coal, and to investigate market integration over time. This has been conducted by applying cointegration and error-correction models on quarterly price series data in Europe and Japan over the time period 1980-2000. Both the coking and the steam coal markets show evidence of global market integration, as demonstrated by the stable long-run cointegrating relationship between the respective price series in different world regions. This supports the hypothesis of a globally integrated market. However, when analyzing market integration over time it is not possible to confirm cointegration in the 1990s for steam coal. Thus, compared to the coking coal market, the steam coal market looks somewhat less global in scope.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Coal – Markets and Prices; Coal – Policy and Regulation

JEL Codes: Q35: Hydrocarbon Resources, D47: Market Design, D40: Market Structure, Pricing, and Design: General, Q41: Energy: Demand and Supply; Prices, Q42: Alternative Energy Sources, L11: Production, Pricing, and Market Structure; Size Distribution of Firms, Q37: Nonrenewable Resources and Conservation: Issues in International Trade

Keywords: Coal industry, market integration, cointegration, coal prices, EU, Japan

DOI: 10.5547/ISSN0195-6574-EJ-Vol27-No1-6


Published in Volume 27, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.