Testing the central market hypothesis: a multivariate analysis of Tanzanian sorghum markets |
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Authors: | Frank Asche Ole Gjølberg Atle G Guttormsen |
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Institution: | 1. Department of Industrial Economics, University of Stavanger, Ullandhaug N‐4036, Stavanger, Norway;2. Department of Economics and Resource Management, Norwegian University of Life Sciences, P.O. Box 5003, N‐1432, Aas, Norway |
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Abstract: | The central market hypothesis is important in the analysis of market integration because it implies a specific market structure while avoiding a simultaneity problem. However, despite its importance, the central market hypothesis is difficult to test and is therefore often assumed. This article shows that the hypothesis can be tested in a Johansen cointegration test provided that prices are nonstationary. This approach is applied to reveal the existence of central markets for sorghum in Tanzania. The results indicate that the Tanzanian sorghum market can be grouped into two market regions, with prices being determined in a central market in each region. |
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Keywords: | Multivariate cointegration Commodity market analysis Central markets Price stabilization C32 D40 O18 Q13 |
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