Are Markets Of Silver Fiber Integrated?Volatility And Price Transmission Analysis Of Cotton Markets In Pakistan

This study deals with the estimation of prices and volatility transmission among domestic cotton markets of Pakistan as well as between international seed cotton markets including Pakistan,China,India and USA.For domestic markets total ten markets are selected in both the cotton producing provinces of Pakistan namely Punjab and Sindh.Price transmission analysis reveals that there exist six cointegrating relations between ten markets and four stochastic trends.Pairwise analysis shows that markets situated in one particular province have long-run equilibrium relationship however,market pairs across provinces are not cointegrated in the long run.Volatility transmission analysis confirms the presence of volatility clustering and persistence in the markets.Interestingly,Hyderabad market transmit price fluctuations to not only other markets located in Sindh but also to the markets in Punjab.Analysis of international markets shows that all the markets including Pakistan,China,India and USA are integrated.However,China is weekly exogenous.The reason behind the weak exogeneity of China is the policy to support the domestic farmers of China which was also the reason of cotton price boom during 2009-11.Volatility transmission analysis also reveals the presence of volatility clustering and persistence.Price relationships across regions is believed to affect land acreage under certain crop.Effect of price volatility on the acreage response of cotton is tested for Sindh and Punjab provinces.Model estimated for Sindh shows a significant coefficient of domestic price volatility.However,due to fairly short sample model did not perform well.Spatially separated markets are considered as integrated if the price in two markets differ only by the transportation cost.Cotton markets in Pakistan as well as international cotton markets are integrated,however,prices in the markets are volatile.In ideal circumstances government intervention is not recommended if markets are integrated.But observing the markets in Pakistan as well as the position of Pakistan in international markets,policies are needed to improve the functioning of cotton markets.Investment in infrastructure and transportation is recommended so as to support the cotton farmers of Pakistan in the domestic as well as in the international markets.