Co-integration analysis of major cotton markets in India

The present study analyses the price co-integration of six major cottonproducing states of India. From each of the six states, one main market was selected based on data availability of market arrivals of cotton prices. Econometric techniques viz, correlation analysis, ADF test, Johansen co-integration, and Granger causality test were used to estimate price transmission and spatial transmission of the markets. Correlation analysis showed that the price of the markets was well integrated and move together at the national level, but the degree of integration was stronger among the closely situated markets than markets at longer distances. The Johansen co-integration results showed the long-run equilibrium relationship among the markets indicating that prices in national cotton markets were well-integrated and move together in response to changes in the demand and supply and price of the product. The Granger causality test indicated that Alidabad and Arvi are the lead markets as they influenced the prices of most of the selected markets in a unidirectional way. The policy intervention calls for strengthening physical infrastructures as well as the market intelligence wing in all markets with the establishment of proper marketing channels and online marketing systems through computerization and networking.