Co-integration of cotton prices in indian markets

The present study analyses the co-integration of cotton prices in seven major cotton producing states of India. Seven important markets of country, one each from the selected states were chosen on the basis of annual market arrivals of cotton. Price transmission and spatial integration of sample cotton markets were analyzed through employing various statistical/econometric techniques viz. correlation analysis, Johansen Methodology, Granger Causality Test and Vector Error Correction Model (VECM). The analysis showed that the cotton prices in different markets at national level moved together and were well integrated, however integration was stronger in case of closely situated markets as compared to those situated at long distances. Out of the seven sample markets, four were found to be having short run equilibrium and in most of the markets, the cotton prices were being influenced by their own lagged prices as well as the current and lagged prices of other cotton markets.