Testing market integration: New approaches with case material from the West Bengal food economy

Abstract

Given the inferential dangers of received methods, a new methodology is introduced to provide a sequence of tests, using weekly spot prices, to examine the dynamic relationship of market commodity prices in three locations in West Bengal. Tests suggest that the markets are integrated, but a lower degree of integration of paddy and rice prices is identified. The hypothesis of full market integration is rejected. Structural and institutional factors which affect the specifics of performance are identified. Physical isolation, the institutional complexity of marketing systems and contractual forms, the polarisation of assets, assets specificity, the institutional control of information and price formation, the underdevelopment of linked markets and the idiosyncratic implementation of state regulatory policy and auto‐regulatory responses enter the explanation.