MARKETS INTEGRATION WITH AND WITHOUT DIRECT TRADE FLOWS: THE TOMATO IN GHANA

Abstract

Spatial market equilibrium theory views trade flows as the driving force behind market integration. We assess the price linkages between five major tomato markets in Ghana to ascertain whether spatial price transmission depends solely on direct trade between markets, or whether other forces drive market integration. We analyze a unique dataset of the fresh tomato trade consisting of semi-weekly price and trade flow data. A regime-dependent vector error correction model is proposed and its results are compared with those of a linear model. The analysis reveals that prices in the net producing areas of Ghana (Navrongo and Techiman) adjust quickly to disequilibria, while prices in major consumption areas do not show significant error correction for the most part. Markets are found to be strongly integrated, and some even in periods without direct trade flows. Information exchange among suppliers or third-market effects offer possible explanations to this finding.