Spatial Market Integration and Price Transmission for Papaya Markets in Ethiopia

Abstract

Spatial market integration strengthens successful trade between food-deficit and food-surplus areas, which leads to specialization and economic growth. However, there is no empirical evidence about spatial market integration and its price transmission in Ethiopian papaya market. Information on market integration is useful in making agricultural policies, including policies and strategies for price stabilization, price risk management, and food security. Thus, this study went through papaya market integration, 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 papaya prices. Average monthly retailer’s papaya prices per kilogram were compiled from Central Statistics Agency (CSA) for three regions: Addis Ababa, Oromia and SNNP (Southern Nations Nationalities and People). ADF test indicates that all variables were non-stationary at their levels and stationary at their first difference. Johansen co-integration tests indicate that four papaya markets significantly cointegrated 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 as compared to other papaya price adjustments; its equilibrium price was stable. It indicates that price converged to equilibrium price over time. 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 flow. The Granger causality test indicates that Arbaminch papaya price had bidirectional relationships with Addis Ababa- Merkato, and Shashamane markets. Concerned bodies should work on asymmetric information to address slow price adjustment between various papaya markets.