Maize Market Integration in Pakistan: An Empirical Analysis Using Threshold Vector Error Correction Model (1991–2023)

Abstract

Maize is one of the key cereal crops in Pakistan, which serves as a fundamental source of food for humans, and an important fodder and feed to cattle and poultry. This study has analyzed the degree of market integration in the Pakistani maize markets by applying the cointegration techniques, leaving out the use of sophisticated econometric analysis that takes into consideration the transaction costs. The current research uses the Threshold Vector Error Correction Model (TVECM), a more comprehensive method, to analyze important maize markets in the country with the data range of 1991-2023. The model incorporates the transaction costs by embracing non-linear, complicated dynamics of price adjustment and making it more accurate than traditional means. The major objective of the study is to determine the extent and size of market integration by collecting data on area, production, and growth indicators of maize in Pakistan. The results show that there is a strong long-term equilibrium between most of the market pairs, with the strong long-term integration between domestic markets, especially those grouped around the cities of Faisalabad, Gujranwala, and Lahore; however, the inefficiencies in the short-run are still present, attributed to infrastructural drawbacks and regulatory barriers. There were 18 statistically significant threshold effects out of 28 market pairs analyzed. The findings significantly advance the academic knowledge on the agricultural markets in Pakistan and support the need to question the integration of the maize market to protect food availability, affordability, and accessibility. The paper also emphasizes that to achieve a competitive, resilient, and sustainable maize sector in Pakistan, there is a need to have an integrated approach that would include the development of infrastructure, policy changes, digital transformation, and international cooperation. The investment in the market infrastructure by the private sector in storage and transportation infrastructure of maize would tend to enhance efficiency in the market and reduce the spending by the government. This kind of approach will not only be beneficial to the producers and consumers but also contribute to the economic security and food security of Pakistan.