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Testing the central market hypothesis: a multivariate analysis of Tanzanian sorghum markets
Author(s) -
Asche Frank,
Gjølberg Ole,
Guttormsen Atle G.
Publication year - 2012
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.2011.00569.x
Subject(s) - cointegration , sorghum , economics , simultaneity , market integration , econometrics , market microstructure , efficient market hypothesis , tanzania , factor market , financial economics , microeconomics , stock market , order (exchange) , geography , context (archaeology) , physics , archaeology , finance , classical mechanics , socioeconomics , forestry
The central market hypothesis is important in the analysis of market integration because it implies a specific market structure while avoiding a simultaneity problem. However, despite its importance, the central market hypothesis is difficult to test and is therefore often assumed. This article shows that the hypothesis can be tested in a Johansen cointegration test provided that prices are nonstationary. This approach is applied to reveal the existence of central markets for sorghum in Tanzania. The results indicate that the Tanzanian sorghum market can be grouped into two market regions, with prices being determined in a central market in each region.