Volume 19, Issue 2

Market Integration and Spatial Price Transmission among the Pakistani and Central Asian Wheat Flour Markets

We investigated the extent of the wheat flour market integration among Central and South Asian countries from 2006 to 2023. We employed the Vector Error Correction Model (VECM) combined with Granger causality tests to determine the degree of integration, the underlying short-run adjustments, and the direction of causality. The results of the study confirmed the existence of long-run co-integration among the wheat flour markets. We also found that Pakistan and Afghanistan significantly responded to price shocks of each other. Furthermore, Kazakhstan, being the major supplier of wheat flour in the Central Asian countries, did not seem to be affecting the prices of wheat flour in other countries. It shows that the markets of Afghanistan and Pakistan are more efficient than the Central Asian markets. There is a need to improve the efficiency of wheat flour markets in Central Asia. From the market efficiency and food security perspectives, this study has suggestions for policymakers. The increased integration between the central and South Asian markets would stabilize the food prices in the region. Moreover, spatial integration among the central and South Asian countries could increase to a greater extent with the infrastructure development. This study contributes to the existing literature by addressing the wheat flour price transmission in the central and south Asian countries for the first time. The application of cointegration and VECM models helps to understand the long-run equilibrium relationship and short-run adjustment in the wheat flour prices and enables us to shed some light on the policies to improve the efficiency of wheat flour markets of central and south Asian countries.