An Investigation into the Spatial Rice Market Integration in Bangladesh: Application of Vector Error Correction Approach

Market integration is a metric for market efficiency, notably pricing efficiency. This paper examined the type and degree of market integration in Bangladesh using latest available weekly rice market price data from the six district markets in Bangladesh from January 2014 to December 2018. The findings demonstrated that the wholesale price series of rice are stationary at first difference, but non-stationary at levels. The vector error correction model is then implemented after the Johansen-Juselius approach has been used to examine the co-integrating relationship between the various district markets. The negative and statistically significant coefficients of error correction term for the rice markets in Barishal, Chattogram, and Sylhet districts show that short-run dynamics are convergent with long-term equilibrium. According to the estimated results of the error correction model, there is an equilibrium relationship between the rice markets in Dhaka with rice markets in Barishal, Chattogram, Dinajpur, and Khulna over the long run. In the short run, the calculated co-efficient values, however, indicate that there is only a weak transmission of price changes from one district market to another within the same week.