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...

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Main Authors:	Boffa, Mauro, Varela, Gonzalo J.
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2019
Subjects:	COMMODITY PRICES FOOD MARKET VERTICAL INTEGRATION LAW OF ONE PRICE SPEED OF ADJUSTMENT ASYMMETRIC PRICE TRANSMISSION MARKET INTEGRATION BORDER EFFECTS PANEL COINTEGRATION SHOCK TRANSMISSION SPATIAL INTEGRATION PRICE ADJUSTMENT GOODS AND SERVICES TAX
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

id	okr-10986-31329
recordtype	oai_dc
spelling	okr-10986-313292021-11-22T12:21:23Z Integration and Price Transmission in Key Food Commodity Markets in India Boffa, Mauro Varela, Gonzalo J. COMMODITY PRICES FOOD MARKET VERTICAL INTEGRATION LAW OF ONE PRICE SPEED OF ADJUSTMENT ASYMMETRIC PRICE TRANSMISSION MARKET INTEGRATION BORDER EFFECTS PANEL COINTEGRATION SHOCK TRANSMISSION SPATIAL INTEGRATION PRICE ADJUSTMENT GOODS AND SERVICES TAX 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. 2019-02-26T16:35:36Z 2019-02-26T16:35:36Z 2019-02 Working Paper http://documents.worldbank.org/curated/en/896891551117861857/Integration-and-Price-Transmission-in-Key-Food-Commodity-Markets-in-India http://hdl.handle.net/10986/31329 English Policy Research Working Paper;No. 8755 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper South Asia India
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	COMMODITY PRICES FOOD MARKET VERTICAL INTEGRATION LAW OF ONE PRICE SPEED OF ADJUSTMENT ASYMMETRIC PRICE TRANSMISSION MARKET INTEGRATION BORDER EFFECTS PANEL COINTEGRATION SHOCK TRANSMISSION SPATIAL INTEGRATION PRICE ADJUSTMENT GOODS AND SERVICES TAX
spellingShingle	COMMODITY PRICES FOOD MARKET VERTICAL INTEGRATION LAW OF ONE PRICE SPEED OF ADJUSTMENT ASYMMETRIC PRICE TRANSMISSION MARKET INTEGRATION BORDER EFFECTS PANEL COINTEGRATION SHOCK TRANSMISSION SPATIAL INTEGRATION PRICE ADJUSTMENT GOODS AND SERVICES TAX Boffa, Mauro Varela, Gonzalo J. Integration and Price Transmission in Key Food Commodity Markets in India
geographic_facet	South Asia India
relation	Policy Research Working Paper;No. 8755
description	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.
format	Working Paper
author	Boffa, Mauro Varela, Gonzalo J.
author_facet	Boffa, Mauro Varela, Gonzalo J.
author_sort	Boffa, Mauro
title	Integration and Price Transmission in Key Food Commodity Markets in India
title_short	Integration and Price Transmission in Key Food Commodity Markets in India
title_full	Integration and Price Transmission in Key Food Commodity Markets in India
title_fullStr	Integration and Price Transmission in Key Food Commodity Markets in India
title_full_unstemmed	Integration and Price Transmission in Key Food Commodity Markets in India
title_sort	integration and price transmission in key food commodity markets in india
publisher	World Bank, Washington, DC
publishDate	2019
url	http://documents.worldbank.org/curated/en/896891551117861857/Integration-and-Price-Transmission-in-Key-Food-Commodity-Markets-in-India http://hdl.handle.net/10986/31329
_version_	1764474077600284672

Integration and Price Transmission in Key Food Commodity Markets in India

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