Price Dynamics of Domestic and International Wheat Markets: A Vector Error Correction Mechanism (VECM) Approach

Abstract

Market integration in agricultural commodities is vital for both developed and developing countries alike. If prices are not dreamily transmitted, then it may lead to biases in production and distribution. The strength of interdependence among markets and the speed in which the changes are passed through determine the degree of integration and the global efficiency of markets. This study examines the long-run and short-run integration of domestic and international wheat markets using Co-integration approach within the framework of Vector Error Correction Mechanism (VECM). A sample of two domestic wheat markets comprising two from the national wheat markets of Mathura (UP) and Khanna (Punjab) were selected along with two international wheat markets comprising from United States and Argentina. Analysis was carried out using the monthly price data between January 2003 and Dec 2019. Findings discovered that the prices became stationary merely upon first differencing. The presence of integration was confirmed among markets involving that there is price conduction.