Market Integration and Causality: An Application to the Major Apple Markets in India

Market integration and prices of fruit crops such as apple play an important role in determining the production decisions of apple farmers. In this context, the present study examines the degree of spatial market integration and price transmission across five major apple markets of the country, viz. Shimla, Chandigarh, Delhi, Bengaluru and Mumbai by adopting Johansen’s Cointegration Test, Grangers Causality and Impulse Response Function. The outcomes of the study strongly buttress the cointegration and interdependence of the apple markets in India. To get additional information on whether and in which direction price transmission is occurring between market pairs, Ganger’s Causality Test has been used, which has confirmed Shimla to be the price determining market as it has causal relations with all the selected markets. The Impulse Response Function supported that all the selected markets responded well to standard deviation shock given to any other market. The major implication of the study is further improvement in market integration situation through dissemination of price and arrival data efficiently and developing communication means with in the markets by the government.

The wholesale apple markets in India are well integrated and have long-run associations across them. The impulse response function revealed that the standard deviation shock given to any market is transmitted quickly to all the other markets.