Testing for regional convergence of agricultural land prices

- The concept of spatial market integration is adopted to agricultural land markets.
- The “law of one price” does not hold for land markets in Germany.
- We identify regions showing similar price dynamics (convergence clubs).
- Membership of a convergence clubs depends on the prevailing production system.

The focus of this paper is on spatial market integration in agricultural land markets. We scrutinize the applicability of the law of one price to land markets and distinguish between absolute and relative versions of this “law”. Panel data unit root and stationarity tests are applied to land sale prices in the German state Lower Saxony. Three main clusters with different price developments are detected. Our results indicate that the law of one price holds only locally due to structural differences among regions.