Abstract
This work aims to study the integration of papaya market, price transmission and price causality patterns with the help of Johansen co-integration test, vector error correction model and Granger causality test using 13 years average monthly prices of papaya. Johansen co-integration tests indicate that four papaya markets significantly co-integrated with each other. Vector error correction (VEC) model test indicates that speed of papaya price adjustment for Arbaminch market was statistically significant at 1% level and the fastest compared to other payaya price adjustment. Its equilibrium price was stable. Whereas, speed of price adjustment for Adama market was insignificant and the slowest as compared to other market prices; its equilibrium was unstable because price change was away from equilibrium price. This implies that there was asymmetric information. The Granger causality test indicates that Arbamnch papaya price had bidirectional relationships with Merkato and Shashemenie markets. Concerned bodies should work on asymmetric information to address slow price adjustment between various papaya markets. Key words: Market integration, papaya, vector error correction model, Granger causality.
Highlights
Spatial market integration strengthens successful trade between food-deficit and food-surplus areas
Market integration has a great contribution to food security and economic growth
This study focuses on spatial integration of papaya prices among a number of markets in Ethiopia
Summary
Spatial market integration strengthens successful trade between food-deficit and food-surplus areas. This leads to specialization and economic growth. Market integration has a great contribution to food security and economic growth. It improves producers’ and consumers’ social welfare, in a diverse and highly vulnerable country such as Ethiopia. It accelerates effective price transmission between markets with the help of market reforms (Golettie and Babu, 1994). Poor food price integration has unfavorable effects on social welfare of producers and consumers (Goletti et al, 1995). The marketable surplus generated by farmers could result in depressed farm prices and diminishing income (Tahir and Riaz, 1997)
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