Market Integration in the Prewar Japanese Rice Markets

TL;DR

This study analyzes the historical integration of Tokyo and Osaka rice markets in Japan from 1881 to 1932, highlighting the role of communication technology and government policy in market integration.

Contribution

It introduces a non-Bayesian time-varying VEC model to assess how communication infrastructure and policies affected rice market integration in prewar Japan.

Findings

Markets integrated in the 1910s.

Telegraph use accelerated market integration.

Telephone systems further promoted market integration.

Abstract

This paper examines the integration process of the Japanese major rice markets (Tokyo and Osaka) from 1881 to 1932. Using a non-Bayesian time-varying vector error correction model, we argue that the process strongly depended on the government's policy on the network system of the telegram and telephone; rice traders with an intention to use modern communication tools were usually affected by the changes in policy. We find that (i) the Japanese rice markets had been integrated in the 1910s; (ii) increasing use of telegraphs had accelerated rice market integration from the Meiji period in Japan; and (iii) local telephone system, which reduced the time spent by urban users sending and receiving telegrams, promoted market integration.