Greener Journal of Business and Management Studies Vol. 6 (1), pp. 035-049, April 2016
Manuscript Number: 040916073
An Assessment of Spatial Integration for Major Wholesale Rice Markets in Tanzania
School of Business Studies and Economics, University of Dodoma, Tanzania.
The study explored the extent of market integration in six selected rice markets of Tanzania, these include one major consumption market, three surplus and two deficit markets using monthly wholesale price data from January 2004 to December 2012. The data were analyzed using Johansen co-integration and Vector Error Correction Model (VECM). The study reveals that in the long run, the markets are co-integrated. There exist four bidirectional causal relationships and eleven unidirectional relationships among markets. Dar-Es-Salaam, a major consumption market has bidirectional granger causality with Mtwara which is a deficit market and recorded a unidirectional relationship with the rest markets. Other pairs of markets with bidirectional relationships among them are Mbeya-Mtwara; Morogoro-Dodoma and Dodoma- Shinyanga. The result of VECM is significant and negative and the rate at which VECM restores deviation from equilibrium is at 60 percent which is slightly higher. The impulse response function results show that if one standard error shock is imposed to a market, its effects dissipate between two to six months. In terms of the forecast error variance decomposition (FEVD), the results show that the predominant sources of price fluctuations across markets are largely due to own shocks and Dar-es-salaam market, to a very small degree, shocks are coming from the rest markets. This implies that Dar-es-salaam market as a major consumption market influences the price behavior of rice markets in Tanzania and can be used to predict future prices. Based on these study findings, the government can use market-based policies for food security since rice markets are integrated so that the effect of policy intervention in one market would be transmitted to other markets.
Key words: Market Integration, Rice Markets, Granger Causality, VECM.
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