Spatial Market Integration and Price transmission of Selected Sorghum market in Ethiopia

Abstract

Ethiopian government has adopted various strategies in enhancing agricultural production and productivity. However, it has given a less attention for the marketing aspects. Hence, in order to improve marketing efficiency, it is important to conduct useful studies on market integration. Thus, this paper aimed at analyzing the degree of market integration, its price transmission and price causality patterns of selected sorghum market with the help of Johansen co-integration test, Vector error correction model and Granger causality test by using a 11 years’ average monthly prices of sorghum over the period 2010
to 2020. The result of Johansen co-integration test clearly revealed that the null hypothesis of no co-integration is rejected by both max and the trace statistics at 1% and 5% level of significance with a minimum of at least 4 co-integrated sorghum markets. The result of vector error correction model also
revealed that out of six selected markets of sorghum, only two sorghum retail markets of Adama and Diredawa have statistically significant speed of price adjustment at 1% and 5% respectively. Although the remaining four markets have an expected negative sign of speed of price adjustment, they are not
statistically significant. Hence, the speed of price adjustment for Adama and Diredawa sorghum market were faster than the other four sorghum market of Addis Abeba, Bedesse, Abomsa and Jigjiga. The result of Granger causality test also indicated that there were bidirectional causality between sorghum
price of Addis Abeba and Jigjiga, Adama and Abomsa, and Bedesse and Diredawa sorghum prices while there were unidirectional relationships between sorghum price of Addis Abeba and Adama, Diredawa with Addis Abeba and Adama, Jigjiga with Adama and Abomsa. The result also further indicated
that there were independent causation between Addis Abeba and Bedesse, Addis Abeba and Abomsa, Bedesse and Abomsa, Bedesse and Jigjiga, Abomsa and Diredawa, Jigjiga and Diredawa market pairs. Hence, government and other concerned bodies should work on asymmetric information to address slow
price adjustment between various sorghum markets.