Integration and Price Transmission in Key Food Commodity Markets in India
This paper examines patterns of market integration for food commodities in India. First, it tests the extent of domestic spatial market integration for retail and wholesale markets in 2006–14 and 2008–15, respectively, and looks at patterns of pric...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/896891551117861857/Integration-and-Price-Transmission-in-Key-Food-Commodity-Markets-in-India http://hdl.handle.net/10986/31329 |
| Summary: | This paper examines patterns of market
integration for food commodities in India. First, it tests
the extent of domestic spatial market integration for retail
and wholesale markets in 2006–14 and 2008–15, respectively,
and looks at patterns of price transmission of shocks from
international sources. Second, it measures vertical
integration from wholesale to retail markets and tests for
asymmetric speed of adjustment to shocks. Third, it examines
the determinants of spatial integration. The results reveal
that in India, food markets are imperfectly integrated
across space, with the law of one price being systematically
rejected, with heterogeneities across states and products.
There is substantial co-movement between wholesale and
retail prices, although integration is still imperfect in
all commodities but one: rice, for which perfect vertical
integration cannot be rejected. Retail prices adjust faster
when wholesale prices rise than when wholesale prices fall.
The analysis of the determinants of spatial integration
reveals that prior to implementation of the Goods and
Services Tax, the mere act of crossing a state border
increased prices; unexploited gains from arbitrage persisted
after considering the effects of transport costs; and
information frictions and menu costs reduced market integration. |
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