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This paper critiques the methods used to investigate integration and efficiency in international markets. Integration is best reflected by flow-based indicators of tradability, while efficiency is related to price-based notions of market equilibrium. Data insufficiency poses a serious constraint because empirical tests that rely on just prices cannot separate tests of the market efficiency hypothesis from tests of the strong assumptions underpinning model specification. Finally, even if market efficiency holds, there may nonetheless be considerable social inefficiency remaining due to trade barriers and excessive costs of commerce.
Christopher B. Barrett (Mon,) studied this question.