Cointegration and Causality: An Application to Major Mango Markets in Pakistan

By Ghafoor, Abdul; Mustafa, Khalid et al. | The Lahore Journal of Economics, Summer 2009 | Go to article overview
Save to active project

Cointegration and Causality: An Application to Major Mango Markets in Pakistan


Ghafoor, Abdul, Mustafa, Khalid, Mushtaq, Khalid, Abedullah, The Lahore Journal of Economics


Abstract

Mangoes are one of Pakistan's most important fruits; the country is the world's fourth largest producer and exporter of mangoes. Integrated markets are those where price signals are transferred from one to another, allowing physical arbitrage to adjust any disturbances in these markets; integrated markets are thus a sign of efficiency. From this viewpoint, we investigate domestic integration among ten major mango markets, i.e., Lahore, Faisalabad, Multan, Gujranwala, Sargodha, Karachi, Hyderabad, Sukkur, Peshawar, and Quetta employing Johansen's cointegration approach and error correction model. Data on monthly wholesale prices data (PRs/100 kg) were obtained from the agricultural and livestock marketing advisor, Government of Pakistan. The results of the study confirm the presence of integration among major mango markets in Pakistan. These markets were able to adjust for 16 to 68% of disequilibrium in one month, implying that it takes almost two to six months to remove any disequilibrium and to move back to long-run equilibrium. The Granger causality test shows that the Karachi market has bidirectional causality with Lahore, Faisalabad, Multan, Hyderabad, and Sukkur, and a unidirectional relationship with the rest. An impulse response analysis was also conducted to check the stability of these markets given a standard error shock to the Karachi base market.

JEL Classification: A10, C01.

Keywords: Mangoes, cointegration, causality, Pakistan.

(ProQuest: ... denotes formulae omitted.)

Introduction

Fruits are an important sector of Pakistan's agricultural economy. They are valued as a rich source of minerals and vitamins providing more energy per unit weight than cereals. An increasing trend in population and changing consumer behavior toward a more balanced diet has increased the demand for fruit. Pakistan has a wide range of agro-climatic conditions, which allow the production of a variety of tropical and subtropical fruits. Among the major fruits of Pakistan, mangoes occupy the second position, coming after citrus fruits in terms of area and production: 192,000 ha of land (2,458,000 tonnes) are under citrus fruit cultivation and 156,000 ha (1,753,000 tonnes) under mangoes (Government of Pakistan 2005/06). While there is much emphasis on the area and production of mangoes in Pakistan, relatively little is known about how price transmission takes place in domestic mango markets. Such information is important for mango producers and other mango value chain role players since it affects their marketing decisions (buying and selling), which in turn affect decisions related to logistical matters and eventually the export potential of mangoes from Pakistan.

In a market-driven economy, the pricing mechanism is expected to transmit information to determine the flow of marketing activities. Pricing signals guide and regulate production, consumption, and marketing decisions over time, form, and place (Kohls and Uhl 1998). Identifying the causes of price differences in interregional or spatial markets has therefore become an important economic analytical tool to better understand markets.

In developing economies, there are several impediments to the efficient functioning of markets, particularly agricultural commodity markets. These include inappropriate transportation infrastructure, difficulties in access to market information, government-imposed restrictions on the movement of goods between regions, government monopoly over the marketing and distribution system, and poor enforcement of anti-trust regulations that result in price fixing and oligopolistic market structures. If markets are not well integrated then price signals can become distorted, leading to the inefficient allocation of resources. The marketable surplus generated by farmers could then result in depressed farm prices and diminishing income (Tahir and Riaz 1997).

Spatial market integration refers to co-movements or the long-run relationship among prices.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Cointegration and Causality: An Application to Major Mango Markets in Pakistan
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?