Testing Market Integration in the Canadian Softwood Lumber Markets

Description

This paper investigates the empirical validity of market integration for the five softwood lumber markets in Canada. Atlantic, Quebec, Ontario, Prairie, and British Columbia (BC). The Augmented Dickey-Fuller (ADF) tests of monthly price series for the period 1987.10-1998:11 reveal strong evidence for the presence of a unit root in each series. Accordingly, the Johansen cointegration technique is used to test for the law of one price in the five regional markets. Results show that the law holds in the pair, three, four, and five markets, supporting the hypothesis of market integration.