Causality testing in models of spatial market integration: a comment on an article by Stefan Dercon

In his article Stefan Dercon makes a number of comments on an earlier article by Alexander and Wyeth [1994], the most important of which is that part of the testing procedure proposed by Alexander and Wyeth is statistically incorrect. In fact the authors were aware of this, as they show by using the correct methods explained by Stefan Dercon in all their other work published in the area, both prior and subsequent to the JDS article (see, for example, Alexander [1993], Alexander and Barrow [1994], Alexander and Rendall [1995] and Alexander and Wyeth [1995]). The real error in the article referred to by Stefan Dercon was that it failed to clarify why the authors went ahead and used unrestricted VARs for causality testing even though the procedure was not strictly correct.