Cointegration and Causality: An Application to Major Mango Markets in Pakistan
Mangoes are one of Pakistan’s mostimportant fruits; the country is the world’s fourth largest producer and exporter of mangoes. Integrated markets are those where price signals are transferred from one to another, allowing physical arbitrage to adjust any disturbances in these markets; integrated markets are thus a sign of efficiency. From this viewpoint, we investigate domestic integration amongten major mango markets, i.e., Lahore, Faisalabad, Multan, Gujranwala, Sargodha, Karachi, Hyderabad, Sukkur, Peshawar, and Quetta employing Johansen’s cointegration approach and error correction model. Data on monthly wholesale prices data (PRs/100 kg) were obtained from the agricultural and livestock marketing advisor, Government of Pakistan. The results of the study confirm the presence of integration among major mango markets in Pakistan. These markets were able to adjust for 16 to 68% of disequilibrium in one month, implying that it takes almost two to six months to remove any disequilibrium and to move back to long-run equilibrium. The Granger causality testshows that the Karachi market has bidirectional causality with Lahore, Faisalabad, Multan, Hyderabad, and Sukkur, and a unidirectional relationship with the rest. An impulse response analysis was also conducted to check the stability of these markets given a standard error shock to the Karachi base market.
Volume (Year): 14 (2009)
Issue (Month): 1 (Jan-Jun)
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- Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
- Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
- Goletti, Francesco & Babu, Suresh, 1994. "Market liberalization and integration of maize markets in Malawi," Agricultural Economics, Blackwell, vol. 11(2-3), pages 311-324, December.
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