RG 2569/1: Market Integration and Border Effects in Agricultural Land Markets (SP 02)

This subproject contributes to the overall objective of the research unit by empirically studying spatial price diffusion of agricultural land markets. We borrow the notion of spatial market integration from commodity price analysis and question whether traditional concepts, such as the law of one price, are meaningful to assess the economic efficiency of agricultural land markets. Moreover, we aim at a better understanding of regional disparities in agricultural land markets by adapting and using models from economic geography. Thus, our results will provide insights into existing market rigidities and potential needs for regulations of land markets. More specifically, we will deal with the following objectives and research questions:
a) Can the concept of spatial market integration be adapted to agricultural land markets? We will scrutinize the theoretical preconditions of the law of one price and examine the effect of their violations in the context of land markets. Together with subproject 7, we will adapt concepts from economic geography to explain the coexistence of multiple spatial equilibria.
b) How can land price convergence clubs be identified? Using various spatio-temporal price diffusion models, we will identify regions showing similar price dynamics and investigate to what extent these regional markets are spatially integrated. The empirical analysis will be conducted for Germany and the Czech Republic.
c) How can the existence of convergence clubs on agricultural land markets be explained? Potential reasons could be regionally different roles of non-agricultural investors, farm size structures, or production structures. Special attention will be given to the impact of borders on the convergence of land prices. We expect that price convergence appears much faster in regions closer to the border because of a direct spillover of prices. The analysis will be carried out for Eastern and Western Germany as well as for the German-Czech border. The expected results are not only interesting from a historical perspective, but also for a better understanding of the functioning of land markets. A better understanding of the determining factors, in turn, helps to forecast the future development of regional land prices.
d) From a methodological viewpoint, which model is most suitable for the analysis and prediction of spatial price development? Three different price diffusion models that cover a wide range of the current literature will be compared: A multifactor error structure model allowing for common factors influencing price development; a nonlinear time varying factor model considering time-dependent and random effects of one common factor; and a spatio-temporal price diffusion model considering the effects of dominant regions and borders.

Ritter, Matthias Prof. Dr. (Details) (Quantitative Agricultural Economics especially Applied Econometrics)
Odening, Martin Prof. Dr. agr. habil. (Details) (Agricultural Farm Management)

Duration of Project
Start date: 08/2017
End date: 04/2022

Research Areas
Agricultural Economics, Agricultural Policy, Agricultural Sociology

Last updated on 2021-30-06 at 15:53