Market Integration and Price Transmission in the Vertical Supply Chain of Rice: An Evidence from Bangladesh
Abstract
:1. Introduction
- (i)
- To analyze short-run and long-run vertical price relationships among farm, wholesale and retail rice markets in Bangladesh.
- (ii)
- To examine the magnitude, speed and, nature of price transmission among vertically separated upstream and downstream markets of rice in Bangladesh.
- (iii)
- To determine the existence of shocks that can make rice market be asymmetric in Bangladesh.
2. Methodology
2.1. Data and Data Sources
2.2. Model Selection and Specification
2.2.1. Stationarity Test
2.2.2. Modeling Rice Price Relstionship among Market Channels
2.2.3. Modeling Causality to Identify Price Leadership
2.2.4. Modeling Magnitude, Speed and Nature of Price Transmission
2.2.5. Modeling Threshold Effect in Price Transmission and Asymmetry Confirmation
3. Results and Discussion
3.1. Stationarity Test
3.2. Co-Integration Analysis
3.3. Testing Causality in the Johansen Vector Error Correction Model (VECM)
3.4. Price Transmission Analysis by Asymmetric Error Correction Model
3.5. Non-Linear Price Transmission Analysis by TAR and M-TAR Model
3.6. Limitations
4. Conclusions
Author Contributions
Funding
Acknowledgments
Conflicts of Interest
Appendix A
Lag | LR | FPE | AIC | SC | HQ |
---|---|---|---|---|---|
0 | NA | 7.64 × 10−7 | −5.571373 | −5.501686 | −5.543073 |
1 | 656.5394 | 3.09/109 | −11.08120 | −10.80245 * | −10.96799 * |
2 | 17.56566 * | 3.08/109 * | −11.08664 * | −10.59883 | −10.88854 |
3 | 8.773931 | 3.30/109 | −11.01641 | −10.31953 | −10.73340 |
4 | 16.78309 | 3.28/109 | −11.02326 | −10.11732 | −10.65535 |
Lag | LR | FPE | AIC | SC | HQ |
---|---|---|---|---|---|
0 | NA | 0.000223 | −2.734494 | −2.688036 | −2.715628 |
1 | 441.6655 | 5.46/106 | −6.442747 | −6.303372 | −6.386146 |
2 | 18.53178 | 4.97/106 | −6.537226 | −6.304935 * | −6.442892 * |
3 | 8.256243 | 4.94/106 | −6.543623 | −6.218416 | −6.411555 |
4 | 11.18582 * | 4.77/106 * | −6.577730 * | −6.159606 | −6.407928 |
5 | 1.672779 | 5.02/106 | −6.526410 | −6.015370 | −6.318874 |
6 | 1.089080 | 5.32/106 | −6.469922 | −5.865965 | −6.224652 |
7 | 0.407322 | 5.67/106 | −6.407134 | −5.710261 | −6.124131 |
8 | 1.327303 | 5.99/106 | −6.353354 | −5.563565 | −6.032617 |
Lag | LR | FPE | AIC | SC | HQ |
---|---|---|---|---|---|
0 | NA | 8.78/105 | −3.665167 | −3.618708 | −3.646300 |
1 | 503.3772 * | 1.27/106 * | −7.900869* | −7.761495 * | −7.844268 * |
2 | 3.055629 | 1.32/106 | −7.860773 | −7.628482 | −7.766439 |
3 | 1.714242 | 1.39/106 | −7.809277 | −7.484069 | −7.677209 |
4 | 6.444439 | 1.40/106 | −7.800668 | −7.382544 | −7.630866 |
5 | 7.486049 | 1.40/106 | −7.802681 | −7.291641 | −7.595145 |
6 | 5.268256 | 1.43/106 | −7.785250 | −7.181294 | −7.539981 |
7 | 3.203863 | 1.48/106 | −7.749096 | −7.052224 | −7.466093 |
8 | 4.207150 | 1.52/106 | −7.723276 | −6.933487 | −7.402539 |
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Sources of Causations | Hypotheses | Price Leadership Decisions | Causality Decisions |
---|---|---|---|
Long-run causality | No price leadership | Bidirectional | |
Farm leads Wholesale Retail leads Wholesale | Unidirectional | ||
Wholesale leads Farm Wholesale leads Retail | Unidirectional | ||
Short-run causality | No price leadership | Bidirectional | |
Farm leads Wholesale Retail leads Wholesale | Unidirectional | ||
Wholesale leads Farm Wholesale leads Retail | Unidirectional | ||
Strong exogeneity | No price leadership | Bidirectional | |
Farm leads Wholesale Retail leads Wholesale | Unidirectional | ||
Wholesale leads Farm Wholesale leads Retail | Unidirectional |
Price Series/Tests | Level Data | First Differences | Order of Integration | |||
---|---|---|---|---|---|---|
γ-statc | γ-statc,t | γ-statw | I(d) | |||
Farm Price (FP) | ||||||
ADF | −2.68 | −3.70 | −8.11 *** | I(1) | ||
PP | −2.47 | −2.91 | −8.17 *** | |||
Wholesale Price (WP) | ||||||
ADF | −2.65 | −3.38 | −9.31 *** | I(1) | ||
PP | −2.24 | −2.69 | −9.69*** | |||
Retail Price (RP) | ||||||
ADF | −2.57 | −3.89 | −9.37 *** | I(1) | ||
PP | −2.55 | −2.97 | −9.94 *** | |||
Critical Values | γ-statc | γ-statc,t | γ-statw | |||
Level of Significance | 1% | 5% | 1% | 5% | 1% | 5% |
ADF | −3.48 | −2.88 | −4.03 | −3.45 | −2.58 | −1.94 |
PP | −3.48 | −2.88 | −4.03 | −3.45 | −2.58 | −1.94 |
Retail, Wholesale and Farm Level | ||||
---|---|---|---|---|
Co-Integration Rank (r) | ||||
r = 0 vs. | 41.94848 *** | 29.79707 | 21.23827 ** | 21.13162 |
r ≤ 1 vs. | 20.71021 *** | 15.49471 | 14.12689 * | 14.26460 |
r ≤ 2 vs. | 6.583319 ** | 3.841466 | 6.583319 ** | 3.841466 |
Causality Test | |||
---|---|---|---|
Sources of Causations | Dependent Variable ∆FP | Dependent Variable ∆WP | Causality Decision |
Long-run causality | vs. 7.196448 ** [0.0073] | vs. 0.895 [0.3442] | Unidirectional (Wholesale → Farm) |
Short-run causality | vs. 5.64240 [0.1304] | vs. 10.12207 ** [0.0176] | Unidirectional (Farm → Wholesale) |
Strong exogeneity | vs. 15.30817 ** [0.0041] | vs. 20.10853 ** [0.0005] | Bidirectional (Wholesale ⬌ Farm) |
Causality Test | |||
---|---|---|---|
Sources of Causations | Dependent Variable ∆RP | Dependent Variable ∆WP | Causality Decision |
Long-run causality | vs. 11.24899 ** [0.0008] | vs. 0.512 [0.4743] | Unidirectional (Wholesale → Retail) |
Short-run causality | vs. 2.621539 * [0.0954] | vs. 0.1277 [0.7207] | Unidirectional (Wholesale → Retail) |
Strong exogeneity | vs. 17.61459 ** [0.0041] | vs. 0.627841 [0.7306] | Unidirectional (Wholesale → Retail) |
Farm-Wholesale | Retail-Wholesale | ||||
---|---|---|---|---|---|
Regressors | Coefficients | t-Statistics | Regressors | Coefficients | t-Statistics |
0.288555 ** | 2.891544 | −0.132748 | −1.504456 | ||
0.025737 | 0.246374 | 0.583457 *** | 8.474050 | ||
−0.008676 | −0.079020 | 0.139843 * | 1.884684 | ||
0.061633 | 0.558938 | 0.089580 | 1.086427 | ||
0.505198 ** | 3.387956 | 0.068034 | 0.737192 | ||
0.218602 | 0.984663 | ||||
0.003069 | 0.018612 | ||||
0.009870 | 0.043138 | ||||
0.085525 | 0.512652 | ||||
−0.076931 | −0.360297 | ||||
0.213523 * | 1.692238 | ||||
0.187891 | 0.916896 | ||||
−0.038645 | −0.242151 | ||||
−0.048874 | −0.254390 | ||||
−0.299727 * | −1.892067 | −0.106754 ** | −2.558078 | ||
−0.157633 * | −1.932706 | −0.181382 ** | −2.200916 | ||
LM test ARCH test Normality test (Jarque-Bera) CUSUM test | 0.8235 [~F (4,102)] 0.9998 [~F (4,114)] 2.30 [0.102] S | 0.3524 [~F (1,117)] 0.5831 [~F (1,123)] 2.58 [0.112] S | |||
Farm-Wholesale | Retail-Wholesale | ||||
Test of co-integration (from asymmetric model) | |||||
(No Co-integration) | (0.009 ***) | (No co-integration) | (0.0002 ***) | ||
Wald test for symmetry | |||||
Hypothesis 1 | (0.096 *) | Hypothesis 1 | (0.151) | ||
Hypothesis 2 | F-stat: 2.227 (0.089 *) | Hypothesis 2 | F-stat: 6.269 (0.002 ***) |
Market Pairs | Farm-Wholesale | Retail-Wholesale | ||
---|---|---|---|---|
TAR | M-TAR | TAR | M-TAR | |
−0.263102 ** (0.115) | −0.125598 ** (0.062) | −0.110574 ** (0.041) | −0.135571 ** (0.039) | |
−0.151137 ** (0.077) | −0.475233 *** (0.114) | −0.263558 ** (0.066) | −-0.099894 (0.065) | |
10.50063 ** | 19.04142 *** | 14.32855 ** | 14.08717 ** | |
F-statistics | 0.581604 | 8.425138 ** | 3.429578 * | 0.213173 |
-0.068218 | −0.032160 | −0.051041 | −0.015185 | |
AIC | −3.161186 | −3.229120 | −4.613962 | −4.552164 |
SBIC | −2.886827 | −2.954760 | −4.478901 | −4.407103 |
LB (4) | 0.999 | 0.997 | 0.333 | 0.389 |
LB (8) | 0.505 | 0.994 | 0.122 | 0.146 |
Lags | 4 | 4 | 1 | 1 |
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Deb, L.; Lee, Y.; Lee, S.H. Market Integration and Price Transmission in the Vertical Supply Chain of Rice: An Evidence from Bangladesh. Agriculture 2020, 10, 271. https://doi.org/10.3390/agriculture10070271
Deb L, Lee Y, Lee SH. Market Integration and Price Transmission in the Vertical Supply Chain of Rice: An Evidence from Bangladesh. Agriculture. 2020; 10(7):271. https://doi.org/10.3390/agriculture10070271
Chicago/Turabian StyleDeb, Limon, Yoonsuk Lee, and Sang Hyeon Lee. 2020. "Market Integration and Price Transmission in the Vertical Supply Chain of Rice: An Evidence from Bangladesh" Agriculture 10, no. 7: 271. https://doi.org/10.3390/agriculture10070271