Spatial integration of major wholesale potato markets of India: A cointegration analysis

Abstract

Agricultural price policy in emerging countries like India, is heavily influenced by the level of market integration for agrarian products mainly due to perishability, seasonality, and uncertainty in production, potato prices will remain unstable therefore, market efficiency can be accomplished by using market integration. The current study examines the market integration by using cointegration analysis on the monthly wholesale prices of potatoes in four significant Indian markets, encompassing 168 observations, from January 2010 to December 2023. To assess stationarity in the present study both Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests were used, to assess cointegration and the relationship of the direction between market. Johansen's cointegration test and the Granger causality test were employed. The results revealed price series were to remain stationary at the level itself, and the Johansen cointegration test revealed the presence of integration among the markers that were chosen because at least one cointegrating equation was present. The Granger test revealed, unidirectional causalities between market pairs such as Indore-Agra, Burdwan-Ahmedabad, Indore-Ahmedabad, and Indore-Burdwan and bidirectional relationships between market pairings such as Ahmedabad-Agra and Burdwan-Agra. The coefficient of the error correction term revealed that about 31.1 per cent adjustment towards the long-run equilibrium in the Agra market occurs in a one-month time period.