The Integration of Tomato Markets in Ghana with and without Direct Trade Flows

Spatial market equilibrium theory views trade flow as the driving force behind market integration. We assess spatial price transmission between domestic tomato markets in Ghana to ascertain whether spatial price transmission veritably depends on direct trade between markets, or whether other forces drive market integration. We analyze a unique data set on tomato trade consisting of semi-weekly price and trade flow data for the five most important Ghanaian markets for fresh tomato, which represents one of the most important commercially produced and consumed vegetables in the country. A regime-dependent vector error correction model is proposed to investigate this question, and the results are compared with those of a linear vector error correction model. The analysis reveals that prices in net producing areas of Ghana, viz. Navrongo and Techiman, adjust quickly to disequilibria, while prices in most major consuming areas do not show significant error correction. Markets are partly found to be strongly integrated even in periods without direct trade flows. Information exchange among suppliers or third-market effects might offer possible explanations to this finding.