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Spatial Price Integration and Pricing Efficiency of Export Markets Level: a Case of Bangladeshi Exportable Fresh Vegetables Markets

M. A. Awal
Senior Scientific Officer, On-farm Research Division (OFRD), Bangladesh Agricultural Research Institute, (BARI), Mymensingh, Bangladesh.

S. A. Sabur
Professor, Department of Agribusiness and Marketing, Bangladesh Agricultural University, Mymensingh.

M. I. A. Mia
Professor, Department of Agribusiness and Marketing, Bangladesh Agricultural University, Mymensingh.

Abstract/ Executive Summary:

The paper examined the pricing efficiency of exportable fresh vegetables markets in Bangladesh and its export markets by using Engle-Granger (EG) test, Co integration Regression for Durbin Watson (CRDW) test and Error Correction Methods (ECM). For the test of pricing efficiency of exportable fresh vegetables markets, the monthly export earnings data were used to test co integration from July 2004-05 to July 2006-07 yielding a total of 36 observations. Engle-Granger test was used to estimate the integration among the fresh vegetables exports markets in Bangladesh. In the co integrating set up, error correction method estimated the long-run relationship between Bangladesh and selected export markets. The vegetables export markets of UK-Saudi Arabia, UK-UAE markets and UK-Singapore markets are not integrated and these markets prices were non-responsive. Bangladesh-UK; Bangladesh; Bangladesh-Singapore; UAE-Saudi Arabia and UAE-Singapore markets are highly integrated due to having the facility of information technology, which closely connected the markets to each other. Bangladesh-UK; Bangladesh-Saudi Arabia; Bangladesh, Bangladesh-Singapore and Saudi Arabia-UAE markets are found strong form of market integration due to congenial atmosphere existed in these markets. The rest combinations of markets do not support the strong form of market integration because of complication of export procedures, lack of bi-lateral agreement. The speed of price adjustment (8) ranges from 9% to 66 % indicating that price adjustment takes around 3 to 20 days in transmitting information from one market to the others export markets. The highest percentage speed of adjustment was found in Bangladesh and UK markets. This exhibits that if any divergence appears from the long-run equilibrium, it is adjusted towards the equilibrium value by the speed of 66% or 20 days. Price adjustments among the selected export markets were found to be quicker in Bangladesh-United Arab Emirates market (3 days).

Keywords: Price integration, Efficiency.Export market, Vegetables

Location:

Start Date: 00-07-2004

End Date: 00-07-2007

Program Area: Socio-economic and Policy

Commodity: Vegetables

Objectives:

(i) To perform the informal and formal tests for stationary of each of the series used in the analysis

(ii) To identify the co integrated set and

(iii) To develop the co integration and EC models for selected fresh vegetable markets in Bangladesh and international export markets

Methodology:

Co integration method In the last few years, a large volume of literature and some specialized books e. g. Granger (1986),.Hendry (1986), Engle and Granger (1987), Stock and Watson (1988), Johansen and Juselius (1990), Johansen (1991), Pearman (1991), Banerjee, Dolado, Galbraith and Hendry (1993), Hargreaves (1994), Hatanaka (1996) etc. have been published where the issue of estimating and testing of long run relations under the notion of "co integration" has been addressed. Several economists have point out the inappropriateness of applying regression models to non stationary data because of so-called problem of "spurious relationship". Specifically, OLS regression technique might give misleading results in two respects. Firstly, it might show a significant relationship among variables in term of high R even if not such relationship exist, and a low Durbin-Watson statistic (d ), and secondly the usual t-statistic for individual regression coefficients does not possess even a limiting distribution and is expected to diverge to infinity under the assumption of independence of non stationary regression and regress and. Thus, models incorporating series, which are non stationary, might be mis specified and standard regression estimation and testing procedures become invalid. To overcome such problems, some researchers have suggested differencing the data to overcome random walk and trend-like components. The concept of co integration was considered as a means of affecting a resolution of such debate. Indeed, the co integration technique appears to offer a means of identifying and hence avoiding the spurious regression so obtained by regression unrelated non stationary time series variables (Granger and Newbold, 1974, Philips, 1986).

Source of Information: Bangladesh J. Agric. Econs. XXXII, 1&2 (2009) 1-16

Article Link (Online Journal):

Funding Source:

Total Budget (Tk.) :

Achievement/Findings:

The vegetables export markets of UK-Saudi Arabia, UK-UAE markets and UK-Singapore markets are not integrated and these markets prices were non-responsive. Bangladesh-UK; Bangladesh-UAE; Bangladesh-Singapore; UAE-Saudi Arabia and UAE-Singapore markets are highly integrated due to having the facility of information technology, which closely connected the markets to each other. Bangladesh-UK; Bangladesh-Saudi Arabia; Bangladesh, Bangladesh-Singapore and Saudi Arabia-UAE markets are found strong form of market integration due to congenial atmosphere existed in these markets. The rest combinations of markets do not support the strong form of market integration because of complication of export procedures, lack of bi-lateral agreement. The speed of price adjustment (8) ranges from 9% to 66 % indicating that price adjustment takes around 3 to 20 days in transmitting information from one market to the others export markets. The highest percentage speed of adjustment was found in Bangladesh and UK markets. This exhibits that if any divergence appears from the long-run equilibrium, it is adjusted towards the equilibrium value by the speed of 66% or 20 days. Price adjustments among the selected export markets were found to be quicker in Bangladesh-United Arab Emirates market (3 days).

Knowledge Management: Journal