Integration and price transmission in wheat markets of Uttar Pradesh, India

Spatial integration and price transmission is an indicator of market performance in a country like India wherein production is geographically dispersed or concentrated. The extent of price integration and transmission in six wheat markets of Uttar Pradesh, India has been examined. Monthly data on wheat arrivals and prices from July 2004 to June 2016 were collected and analysed. Market arrivals and prices exhibited an increasing trend in all the six markets except for arrivals in Bahraich and Meerut. Seasonal decomposition of prices indicated that the index was high during December for all the six markets but varied between May-July for attaining the minimum. Johansen's cointegration test has been employed to know whether the spatially separated markets share a linear deterministic trend and the law of one price (LOOP) exist. The maximum likelihood test indicated five cointegration relations among the six markets. However, some market pairs have depicted unidirectional causality, while the rest have shown either bidirectional causality or no causality. The wheat markets have even confirmed the existence of LOOP amongst them barring the transfer cost across markets. The study concludes that rational allocation of resources based on the degree of integration will increase the overall performance of markets with reduced distortion.