Cointegration and Market Integration: An Application to the Potato Markets in Rural West Bengal, India
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The paper attempts to examine the market integration with the help of cointegration test on the prices of potato of Hooghly district in West Bengal. The analysis has been made at two levels, namely at the level of wholesale markets and at the retail markets. The cointegration test by Johansen and Jeselius (1990) applied to weekly prices of three important potato markets in Hooghly district suggest that the markets are integrated. Our results revealed that price signals and information are transmitted smoothly across the markets. These results have important policy implications. In a situation when potato markets are spatially integrated the government may think of reducing or even withdrawing its efforts to influence the price in the market. The finding of the market integration appears to be quite significant for the success of price policy and market liberalisation programs undertaken in India.