Spatial Integration of Wheat Markets in India: Evidence from Cointegration Tests

Abstract

Using the maximum likelihood method of cointegration, this paper empirically evaluates intra-state and inter-state spatial integration of wheat markets in India. The cointegration tests provide strong evidence in favour of spatial integration of the regional wheat markets. Even though the regional markets are geographically dispersed, the prices across different market centres within and across the selected states have exhibited long-run spatial linkages, suggesting that all the exchange locations are integrated and the prices provide relevant market signals. There are several implications of these results for agricultural price policy and food market liberalization programmes.

Testing for spatial market integration and law of one price in Turkish wheat markets

“…This signifies that the number of co-integrating vectors is an important indicator of the extent of co-movement of prices. An increase in the number of co-integrating vectors implies an increase in the strength of market integration (Gosh 2003).…”

“…These studies generally applied a radial model that was proposed by Ravallion (1986) to test the degree of price integration between the central and local markets. The second group of studies searched for whether the set of markets share common trend to measure strength of integration among the regional markets by using Johansen's (1988) co-integration framework (Goodwin 1992;Silvapulle and Jayasuriya 1994;Benson et al 1994;Asche et al 1999;Dawson and Dey 2002;Gosh 2003). The main idea of this approach is based on Stock and Watson (1988).…”

Underlying Trends and International Price Transmission of Agricultural Commodities

“…The study of price transmission has been motivated largely by the view that co-movement of prices in different markets can be interpreted as a sign of efficient markets, while the absence of price co-movement can be viewed as a sign of market failure. A large number of studies have examined price co-movement within a country (see Ravalion 1986, Palaskas and Harriss-White 1993, Abdulai 2000, Ghosh 2003, Kuiper et al 2003, Meyers 2008; as well as the transmission of prices from world markets to domestic markets in developing countries (see Mundlak and Larson 1992, Quiroz and Soto 1995, Conforti 2004, Minot 2010.…”

Economic integration across Latin America: Evidence from labour markets, 1990–2013

“…3 In particular, studies of agricultural markets are common. Examples include Dawson and Dey (2002), Ghosh (2003), Mohanty and Langley (2003) and Mohanty, Peterson, and Smith (1996). studies that use output prices as a measure of international market integration and suggest that persistent price differences imply that borders segment markets.…”

“…4 One lesson from this literature is that barriers to trade inhibit price convergence, but prices may still be cointegrated across markets with natural or other barriers. Paul, Miljkovic, and Ipe (2001) apply cointegration procedures to gasoline markets in United States, and Mohanty et al (1996), Ghosh (2003) and Mohanty and Langley (2003) are examples that apply cointegration measures to agricultural markets. Oh (2003) applies these concepts to capital markets.…”