Co-integration and Market Integration: An Application to Raphia Palm Wine Markets in Niger Delta Area of Nigeria

Abstract

The study was designed to examine market integration with the help of co-integration test on the price of Raphia palm wine (RPW) in the Niger Delta Area of Nigeria using evidences from Bayelsa, Delta and Rivers States of Nigeria. Issues considered included; the determination of the existence and level of RPW inter- market price dependences; description of short-run interactions through cross-market lagged price changes; evaluation of long-run responses to contemporaneous price changes in the RPW market; and speed of price adjustments to long-run equilibrium. Multi-stage random sampling was used to select the markets used for the study. Primary data was used for the study while data analysis was achieved using co-integration test by Johansen and Jeselius (1990) applied to four daily market prices of two (rural and urban) Raphia palm wine markets in each of the selected States. Results obtained from the study revealed that price signals and information were transmitted smoothly, but slowly across the markets. The short-run estimates indicated that the rural markets adjusted to price changes in the urban markets within each State, while at the State level, it was observed that Delta and Rivers States did all the price adjustment. The long-run responses to exogenous price changes showed that a one percent increase in the urban prices of RPW within the States resulted in a corresponding decrease in the rural price of RPW by 2.5%, 1.05% and 1.27% for Bayelsa, Delta and Rivers States respectively. While at State level, a 1% increase in price of RPW in Bayelsa State would cause a decrease in price of RPW in Delta and Rivers States' prices by 1.37% and 6.8% respectively. The speed of price adjustment between the short-run and long-run RPW prices measured by ECM within the States were -0.14423 and 0.09206 for urban and rural price in Bayelsa State; -0.2811 and 0.3259 for urban and rural price in Delta State; and 0.3674 and 0.7609 for urban and rural price in Rivers State respectively. On State level, however, Bayelsa State had an adjustment speed of -0.154, Delta had a speed of 0.235, while Rivers State had a speed of 0.0189 respectively. These results have important policy implications. Since Raphia palm wine markets are spatially integrated, the government may think of reducing or even withdrawing its efforts to influence the price in the market.