MARKET INTEGRATION OF WHEAT IN PAKISTAN

摘要

A study was conducted in the Department of Agricultural Economics, Sindh Agricultural University, Tandojam, Pakistan during the year 2016. This study is a first attempt of its kind to analyze the extent of market integration in the whole country using an advanced dynamic model, which takes into account the unobserved transaction costs via thresholds. It is based on secondary data, monthly wholesale price data collected from five regional markets from January 1988 to April 2011. Price series were tested for stationarity with the Augmented Dickey Fuller (ADF) test and it was found that all prices are integrated of order one. Co-integration was also identified using Johansen’s co-integration test. Firstly, Vector Error Correction Model (VECM) was applied to the data to analyze the extent of market integration. The Threshold Vector Error Correction Model (TVECM) with a band of non-adjustment was then applied to incorporate transaction costs, without relying on observations for these costs. It was found that linear VECMs provide misleading results as compared to TVECMs. Short-run adjustments in the TVECM model provide further insight depending on regimes as well as on the markets. In most cases, higher and significant adjustments were found in the upper regime. Lahore market showed the highest adjustment of 68 percent, whereas Hyderabad market adjusted for 34 percent in the upper regime. Multan market adjusted significantly to the shock in Lahore market with 65 and 36 percent in lower and upper regimes, respectively.