Price Dynamics and Co-integration in Onion Markets of South India

This study has examined the long-run and short-run integration of four onion markets (Chennai, Hyderabad, Trivandrum and Bangalore) in south India using co-integration approach within the framework of vector error correction mechanism (VECM). This study was carried using the monthly price data between January 2002 and December 2015. The study has revealed that the prices became stationary only upon first differencing. The existence of integration was found among the markets implying that there was price transmission across them. The estimated error-term co-efficients revealed that in Bangalore and Chennai onion markets the disequilibrium of 22 per cent and 18 per cent got corrected within a month by changes in its own prices. But, for other markets, the speed of convergence ranged from 33 per cent to 46 per cent for short-run price movements to become stable along long-run equilibrium path in one month lagged period.