Regional Market Integration and Sustainable Development: The Nexus and Policy Implications

Commodity prices provide signal to producers, consumers and market players for decision making. Under poor market integration, price signals gets distorted leading to inefficient use of resources and inequitable welfare distribution hampering sustainable development. The paper investigates the extent of price integration and transmission in Indian wheat markets sourcing monthly wholesale prices data from July 2002 to June 2017. Spatial market integration has been tracked following Johansen's cointegration testing procedure to identify the presence of linear deterministic trend in prices, and Granger causality test has been employed to discover the direction of price transmission. The maximum likelihood test indicated that wheat markets are integrated and prices are being transmitted but not perfectly with some market pairs showing unidirectional-causality, while the rest exhibiting either bidirectional-causality or no-causality. The analysis on behavior of prices and extent of price transmission indicates that wheat markets are more competitive in a majority of regions and less competitive in the rest. Wheat markets that perform poor warrants for policy interventions and investment plans at all levels for sustainable development since the commodity is linked with livelihood and nutritional security of millions.