Better market integration leads to faster transmission of price signals that increase producers’ and consumers’ welfare. Efficient market integration encourages producers to specialise according to their comparative advantage and use superior technologies that have a great impact on banana productivity. Therefore, this study investigated the degree of market integration and spatial and vertical price transmission and identified the direction of price formation in the banana supply chain. Results of the autoregressive distributed lag (ARDL) bounds test for cointegration indicated that wholesale prices had a significant effect on both banana producers’ and retailers’ prices in both the long run and short run. The central markets determine the longand
shortrun producers’ prices in the supply chain. The results of the errorcorrection version of the ARDL model showed a considerable degree of vertical price transmission from the central wholesale market to the local producer markets, indicating market integration. The findings imply that local banana market prices in surplus areas are asymmetrically integrated and transmitted with central banana market prices/deficit areas in Ethiopia because of the geographic distance between markets, market power, and high transportation costs. Market power and concentration at various stages of supply chains can cause asymmetric price transmission. The government should take actions to address banana market failures to increase banana productivity as well as decrease distribution costs, thus leading to higher producers’ and consumers’ welfare by increasing profits and decreasing food costs, respectively.
Keywords: Leadership position in banana supply chain, Wholesale markets, Vertical and spatial market integration, Transmission, Price formation.
JEL Classification Codes: D82, E31, L11, and Q13
Zewdie Habte Shikur (2024). Spatial and Vertical Market Integration and Price Transmission in the Ethiopian Banana Supply Chain. Asian Journal of Economics and Finance. 6(1), 67-85. https://
DOI: 10.47509/
AJEF.2024.v06i01.04