Document Type

Working Paper

Publication Date



Regional Research Institute

Document Number

Research Paper #2002-1


Regional Research Institute


Recent attention to the use of commodity market derivatives as a vehicle for reducing the price risks of commodity exporting developing countries has renewed interest in the behavior of primary commodity prices separated by space. For some time a common belief has existed that commodity prices have converged over the last several decades on world markets. Increases in communications, central bank activities and globalization are cited as reasons as to why prices in spatially dispersed markets should become closer. However, the interrelations between business cycles and price instability are likely to reduce this possibility. To analyze this hypothesis, we utilize measures of market integration, regression, cointegration and impulse function analysis. Comparable geographic data have been compiled for six commodities: coffee, cotton, wheat, lead, copper and tin. The empirical results do not support the convergence hypothesis, but rather a pattern of fluctuating coherence.