Price integration in cotton markets of India

The current study seeks to explore the degree of market integration through co-integration analysis on the wholesale weekly prices of cotton. Five markets were selected from different states i.e. Maharastra (Akola), Gujrat (Rajkot and Surendranagar) and Punjab (Bathinda and Mansa) of India during april, 2010 to march, 2014. The number of observation became 188 for which the data were collected. By using Johansen test, examined the causality tests were examined and using Vector Error Correction Model and captures the speed of adjustment to long run equilibrium was studied. The results reveal that out of five markets only four markets were co-integrated and the Rajkot market was the dominant one. However, the study finds no co-integration within four pairs of markets (Surendranagar-Akola, Bathinda-Akola, Mansa-Akola and Rajkot-Bathinda). The Granger Causality Test reveals six and four bi-directional and uni-directional causations respectively under different market situations. Further, Vector Error Correction Model (VECM) results reveal a combination of positive and negative coefficients, though positive coefficients exceed the negative coefficients. Greater integration in these markets may help the farmers as well as consumers of selected crops through better price signals.