Are Pakistan’s Rice Markets Integrated Domestically and With the International Markets?

We analyze whether Pakistan has become one domestically integrated rice market and whether Pakistan’s rice markets are integrated with the international markets, using monthly data from 1994 to 2011. During this period, major policy shifts took place. In 2002, Pakistan terminated the price support policy; in 2002-2004 export subsidies were introduced, and in 2008, a minimum export price policy was adopted. We compare the degree of integration before and after 2002. We find that most of the regional rice markets in Pakistan are integrated domestically. Pakistan’s rice markets are also integrated with the international markets, using prices in Thailand and Vietnam as benchmarks. The price support policy abolition seems to have contributed to greater domestic integration, while the subsequent export policies seem to have decreased the extent of Pakistan’s integration with the international markets. However, although Pakistan’s rice markets generally are domestically integrated as well as integrated with the international market, price adjustments are quite slow. Thus, only 3% to 11% of deviations from long-run equilibrium are adjusted on a monthly basis, indicating that a shock in international markets takes several months to be fully transferred to prices in Pakistan.