Market Integration of Wholesale Chilli Prices of Pakistan

Abstract

Vegetables hold very important and significant place in our diet, among vegetables chilli (Capsicum annuum L.) is one of the most important vegetable crop of Pakistan. The vegetable’s market integration is the major problem in Pakistan and symbol of efficiency is integrated markets. The present study was conducted for domestic integration of four major chilli markets of Pakistan by using their monthly wholesale chilli prices of eighteen years (June 2000 to July 2019) by adopting Johan-sane integration approach. The Augmented Dickey Fuller (ADF) test revealed that prices are integrated at first difference and results of pair wise integration showed chilli markets of Pakistan (Hyderabad, Lahore and Quetta) are integrated in the long-run and in short run with strong relationship, except Peshawar market because of long distance, price variation & seasonal effects. The results of Vector Error Correction Model (VECM) showed significant adjustment of prices in almost three pairs of markets (Hyderabad, Lahore and Quetta) and the finding of Granger causality test showed the bidirectional and unidirectional causality relationship between the chilli markets. Granger causality tests have also indicated that unlike in other market pairs such as Lahore-Peshawar and Quetta-Peshawar have no causality direction on price formation between them. The government should design a network of chilli wholesale markets across the country that are nearly equal distance apart in order to improve market convergence and price transmission to make chilli more profitable.