The integration of Nigeria's rural and urban foodstuffs markets

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Okoh, Rosemary N.
Egbon, P.C.
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African Economic Research consortium
The study intended to determine the presence and level of integration of the rural and urban foodstuffs markets of Nigeria. A central prediction of the law of one price is that prices of all transactions will tend to uniformity, allowing for the transportation cost between different spatial markets. Using the Johansen bivariate test of cointegration, it was established that the rural and urban foodstuffs markets are pair-wise cointegrated. The test for convergence to the law of one price as well as the test for weak exogeneity for urban foodstuffs prices (Y1) could not be rejected at the 1% level of significance. Hence, we conclude that the rural and urban foodstuffs markets are well integrated and are in the same market for arbitrage. The results further suggest that the urban market price drives the rural market price. The size of the adjustment coefficient for the rural foodstuffs price (Y2) shows that the speed of adjustment to disequilibrium is moderate. The persistence profile further shows that it would take about five months for the effects of a shock on the market system to die out. The findings of this research have significant policy implications for Nigeria’s domestic foodstuffs market system as well as its international trade policies.