International Market Integration for Bioethanol

Miroslava R ajcaniova, Erika Dobo, Abha Kumar, Mahesh Kumar Singh, Judit Villanyi, Miklos Vasari

Vol 12 , Issue 1 , January - June 2011 | Pages: 113-121 | Research Paper

https://doi.org/10.51768/dbr.v12i1.121201109

Published Online: January 04, 2011

Author Details ( * ) denotes Corresponding author

1. * Miroslava R ajcaniova, Ph. D Research Scholar, Department of Economics, Faculty of Economics & Management, Slovak University of Agriculture in Nitra, Nitra, Slovakia

2. Erika Dobo, Doctoral Student, Szent Istvan University, Godallo, Hungary

3. Abha Kumar, Research Scholar, GGS Indraprastha University, Dwarka, Delhi, India

4. Mahesh Kumar Singh, Professor, Szent Istvan University, Godallo, Hungary

5. Judit Villanyi, Assistant Professor, Faculty of Economics and Socila Sciences, Szent Istvan University, Godallo, Hungary

6. Miklos Vasari, Assistant Professor, Faculty of Economics and Socila Sciences, Szent Istvan University, Godallo, Hungary

World Bioethanol fuel production reached 19.5 billion gallons in 2009 (RFA, 2010). The biggest producers of bioethanol are Brazil and USA, their joint production accounts for 89 percent of the world’s bioethanol fuel production in 2009. Our focus is to identify and measure how prices of individual economies (Brazil, USA, and Europe) converge in the bioethanol market. This purpose necessitates the use of a time-series based approach. We evaluate the inter-relationship among the variables in a Vector Autoregression (VAR) and Impulse Response Function (IRF). To achieve our goal, we first collected weekly data for bioethanol prices in Europe, USA, and Brazil from January, 2000 to October, 2009. The results provide evidence of cointegration relationship between US bioethanol prices and Brazil bioethical prices, but no cointegration between the prices of bioethanol in Europe and Brazil or Europe and USA. As a result, we used a VAR model on first differences. With the help of Impulse Response Function, we found out that the impact of the price shock of one variable on the other variables is small and the prices of bioethanol in analyzed countries seem to go back to their initial level in a five-week period.

Keywords

Bioethanol Price, Market Integration, Vector Autoregression.

Asche, F., Osmundsen P., and Tveteras, R. (2001), Market Integration for Natural Gas in Europe, International Journal of Global Energy, Vol. 16, pp.300-312.
Asche, F., Gjolberg, O., and Volker, T. (2003), Price Relationships in the Petroleum Market: An Analysis of Crude Oil and Refined Product Prices, Energy Economics Elsevier, Vol. 25, No. 3, pp.289-301 (May).
Arshad, F.M. and Hameed, A.A. (2009), The Long Run Relationship Between Petroleum and Cereals Prices, Global Economy & Finance Journal, Vol. 2, No. 2 March, pp.91-100.
Bloomberg Database http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=SU:CN&sid=aWnF7YBFWQeU, Retrieved March 2009.
Ciaian, P. and Kancs, A. (2009), Interdependencies in the Energy-Bioenergy-Food Price Systems: A Cointegration Analysis, EERI Research Paper Series No 06/2009 ISSN 2031-4892.
Cuddington, J.T. and Wang, Z. (2006), Assessing the Degree of Spot Market Integration for U.S. Natural Gas: Evidence from Daily Price Data, Journal of Regulatory Economics, Vol. 29, pp.195-210.
Engle, R.F. and Granger, C.W.J. (1987), Co-Integration and Error Correction: Representation, Estimation, and Testing, Econometrica, Vol. 55, No. 2, pp.251-276.
European Bioethanol Fuel Associations http://www.epure.org/, Retrieved on April 2009.
Hart, C.E. (2005), Ethanol Revisted 2005 Iowa Ag Review, Center for Agricultural and Rural Development, Iowa State University, Summer 2005.
Johansen, S. (1991), Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models, Econometrica, Vol. 59, p.22.
Koop, G. (2006), Analysis of Financial Data, John Wiley & Sons Ltd, England, ISBN-13 978-0-470-01321-2.
Liu, X. (2007), Impact of Global Ethanol Market on EU: Testing for Cointegration and Causality Among EU, USA and Brazil, NJF Seminar 405 Production and Utilization of Crops for Energy 25-26 September 2007 Lithuania.
Paul, J.R., Mijkovic, D., and Ipe V. (2001), Market Integration in US Gasoline Markets, Applied Economics, Vol. 33, pp.1335-1340.
Qin, D. et al. (2007), Measuring Regional Market Integration in Developing Asia: A Dynamic Factor Error Correction Model (DF-ECM) Approach, ADB Working Paper Series on Regional Economic Integration No. 8, Office of Regional Economic Integration, Asian Development Bank.
Rajcaniova, M. and Pokrivcak, J. (2010), Crude Oil Price Variability and Its Impact on Ethanol Prices, In: Agricultural Economics - Czech, 2010, ISSN 0139-570X, forthcoming. RFA 2010 Ethanol Industry Outlook: Cimate of Opportunity, Renewable Fuels Association, Available at: http:// www.ethanolrfa.org/industry/outlook/RFAoutlook2010_fin.pdf, Retrieved June, 2010.
Serletis, A. and Herbert, J. (1999), The Message in North American Energy Prices, Energy Economics, Vol. 21, pp.471-483. Siliverstovs, B., L’Hegaret, G., Neumann, A. von, and Hirschhausen, C. (2005), International Market Integration for Natural
Gas? A Cointegration Analysis of Prices in Europe, North America and Japan, Energy Economics, Vol. 27, pp.603-615.