Konrad Burchardi, Ingvild Almås, Timo Boppart, Hannes Malmberg

Project summary

Market integration and economic development

Income disparities between rich and poor countries are substantial. Sweden is almost ten times as wealthy as Vietnam and more than thirty times as wealthy as Ethiopia.

 

Two of the oldest and most challenging questions in economics are why these differences have arisen and why they persist. Prevailing macroeconomic models have not been able to fully explain economic development. One possible limitation of these models is that they assume that markets function well and are integrated even in low-income countries. There is considerable evidence that this is not the case. In low-income countries, many farmers practise subsistence farming, and commodity prices vary considerably between regions – both indications of limited market integration.

 

The research project investigates, both theoretically and empirically, how this lack of integration may constrain economic development. Theoretically, we demonstrate the importance of integrated markets in enabling large-scale production and specialisation. Empirically, we conduct surveys to measure the degree of market integration in different countries. We use the empirical findings to document patterns and to test and develop theories.

 

The project’s findings have potentially significant practical implications. If greater market integration is central to economic development, policymakers should prioritise measures that strengthen the functioning of domestic markets. The project’s conclusions may therefore contribute to the design of effective development policies at both national and international level.