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Testing for the law of one price: rice market integration in Bangladesh

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  • P. J. Dawson

    (University of Newcastle upon Tyne, Newcastle upon Tyne, UK)

  • P. K. Dey

    (Bangladesh Rice Research Institute, Gazipur, Bangladesh)

Abstract

Recent studies of spatial market integration have adopted error correction models to test for its existence and for market dominance. An integrated empirical framework is proposed here which tests for long-run spatial market integration between price pairs using a dynamic vector autoregressive model and cointegration. Hypotheses tests of market integration, perfect market integration, and causality are conducted sequentially. The approach is illustrated using monthly prices from rice markets in Bangladesh since trade liberalisation in 1992. Results show that rice markets are perfectly integrated and that Dhaka dominates near markets but is dominated by more distant markets. Copyright © 2002 John Wiley & Sons, Ltd.

Suggested Citation

  • P. J. Dawson & P. K. Dey, 2002. "Testing for the law of one price: rice market integration in Bangladesh," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(4), pages 473-484.
  • Handle: RePEc:wly:jintdv:v:14:y:2002:i:4:p:473-484
    DOI: 10.1002/jid.888
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    References listed on IDEAS

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    Cited by:

    1. Marks, Daan, 2010. "Unity or diversity? On the integration and efficiency of rice markets in Indonesia, c. 1920-2006," Explorations in Economic History, Elsevier, vol. 47(3), pages 310-324, July.
    2. Robertson, Raymond, 2004. "Defining North American Economic Integration," 2004 NAAMIC Workshop I: North American Agrifood Market Integration: Current Situtation and Perspectives 163856, North American Agrifood Market Integration Consortium (NAAMIC).
    3. Alam, Mohammad Jahangir & Begum, Ismat Ara, 2012. "World and Bangladesh Rice Market Integration: An Application of Threshold Cointegration and Threshold Vector Error Correction Model (TVECM)," 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK 135119, Agricultural Economics Society.
    4. Katengeza, Samson P. & Mangisoni, Julius H. & Okello, Julius Juma, 2010. "The Role of ICT-based Market Information Services in Spatial Food Market Integration: The Case of Malawi Agricultural Commodity Exchange," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96170, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Africa (AEASA).
    5. Trung, Le Dang & Tam, Tran Ngo Minh & Baulch, Bob & Hansen, Henrik, 2007. "Testing for Food Market Integration: A Study of the Vietnamese Paddy Market," 81st Annual Conference, April 2-4, 2007, Reading University 7974, Agricultural Economics Society.
    6. Chowdhury, Nuimuddin & Farid, Nasir & Roy, Devesh, 2006. "Food policy liberalization in Bangladesh: how the government and the markets delivered," MTID discussion papers 92, International Food Policy Research Institute (IFPRI).
    7. Rashid, Shahidur & Gulati, Ashok & Cummings, Jr., Ralph, 2008. "Grain marketing parastatals in Asia: Why do they have to change now?," IFPRI book chapters,in: Rashid, Shahidur & Gulati, Ashok & Cummings, Jr., Ralph (ed.), From parastatals to private trade: Lessons from Asian agriculture, chapter 2, pages 10-47 International Food Policy Research Institute (IFPRI).
    8. Mohammad J Alam & Raghbendra Jha, 2016. "Asymmetric threshold vertical price transmission in wheat and flour markets in Dhaka (Bangladesh): seemingly unrelated regression analysis," ASARC Working Papers 2016-03, The Australian National University, Australia South Asia Research Centre.
    9. Panos Fousekis & Vasilis Grigoriadis, 2016. "Price co-movement in the principal skim milk powder producing regions: a wavelet analysis," Economics Bulletin, AccessEcon, vol. 36(1), pages 477-492.
    10. Pratap Kumar JENA, 2016. "Commodity market integration and price transmission: Empirical evidence from India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 283-306, Autumn.
    11. Tahir Mukhtar & Muhammad Tariq Javed, 2007. "Price Integration in Wholesale Maize Markets in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(4), pages 1075-1084.
    12. Akpan, S.B. & Udoka, S. J. & Inimfon, V. P., 2016. "Assessment of Rice Market Competiveness Using Horizontal Price Transmission: Empirical Evidence from Southern Region of Nigeria," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 8(2), June.
    13. Kadir Eryigit & Suleyman Karaman, 2011. "Testing for spatial market integration and law of one price in Turkish wheat markets," Quality & Quantity: International Journal of Methodology, Springer, vol. 45(6), pages 1519-1530, October.
    14. Pratap Kumar JENA, 2016. "Commodity market integration and price transmission: Empirical evidence from India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(608), A), pages 283-306, Autumn.
    15. Alam, Mohammad Jahangir & McKenzie, Andrew M. & Buysse, Jeroen & Begum, Ismat Ara & Wailes, Eric J. & Van Huylenbroeck, Guido, 2012. "Measuring Market Integration in the Presence of Threshold Effect: The Case of Bangladesh Rice Markets," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124435, Agricultural and Applied Economics Association.
    16. Yavapolkul, Navin & Gopinath, Munisamy & Gulati, Ashok, 2004. "Post-Uruguay Round price linkages between developed and developing countries," MTID discussion papers 76, International Food Policy Research Institute (IFPRI).
    17. Katengeza, Samson P., 2009. "Malawi Agricultural Commodity Exchange And Spatial Rice Market Integration," Research Theses 117804, Collaborative Masters Program in Agricultural and Applied Economics.
    18. Rashid, Shahidur & Cummings, Ralph Jr. & Gulati, Ashok, 2005. "Grain marketing parastatals in Asia," MTID discussion papers 80, International Food Policy Research Institute (IFPRI).
    19. Katengeza, Samson P., 2009. "Malawi Agricultural Commodity Exchange And Spatial Rice Market Integration," Research Theses 157596, Collaborative Masters Program in Agricultural and Applied Economics.
    20. Chad P. Bown & Daniel Lederman & Samuel Pienknagura & Raymond Robertson, 2017. "Better Neighbors," World Bank Publications, The World Bank, number 25736, June.
    21. Muhammad Sarwar Zahid & Abdul Qayyum & Wasim Shahid Malik, 2007. "Dynamics of Wheat Market Integration in Northern Punjab, Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(4), pages 817-830.

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