Testing the law of one price: cotton market integration in Pakistan’s Punjab. | [Pakistan Journal of Agricultural Sciences • 2007]

Author(s):

1. Khalid Mushtaq: Department of Agricultural Economics, University of Agriculture, Faisalabad, Pakistan

2. Faisal Abbas: Centre for Development Research (ZEF), University of Bonn, Germany

3. Abedullah: Department of Environmental & Resource Economics, University of Agriculture, Faisalabad, Pakistan

Abstract:

Regional market integration in many agricultural commodities has been extensively studied for the insight it provides into the functioning of such markets; such studies provide valuable information about the dynamics of market adjustments, and whether there exist market imperfections, which may justify government intervention. This study empirically estimated the degree of integration in cotton markets of Pakistan’s Punjab using the law of one price (LOP) framework and cointegration analysis. Cointegration Results show that all seed cotton markets are highly integrated in the long run. Regression results show that government intervention in terms of seed cotton procurement negatively influenced the degree of market integration. The high degree of market integration observed in this case is consistent with view that Punjab’s seed cotton markets are quite competitive and provide little justification for extensive and costly government intervention designed to improve competitiveness to enhance market efficiency.

Page(s): 364-369

DOI: DOI not available

Published: Journal: Pakistan Journal of Agricultural Sciences, Volume: 44, Issue: 2, Year: 2007

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