Spatial price transmission in the onion markets of Bangladesh: An application of NARDL approach

Abstract

As the price of local onions is greatly impacted by the price of imported onions at these two levels of the supply chain, the goal of this study was to ascertain whether onion prices in Bangladesh are transmitted asymmetrically at the wholesale and retail levels. To analyze asymmetry, the study employed the nonlinear autoregressive distributed lag (NARDL) model in the short and long run using monthly time series data from January 2006 to December 2020. The NARDL model captures the effects of both positive and negative shocks in the short as well as in the long run. The empirical results from the NARDL indicate that the wholesale price of local onion shares a short-run relationship with the wholesale price of imported onion while the local retail price of onion shares a long-run relationship with the imported retail price of onion. In addition, the short-run impact of local wholesale and imported wholesale prices is asymmetric. Long-run evidence supports the existence of an asymmetric effect between the local and imported retail onion prices. Using the Pairwise Granger causality test, we examined the causal relationships between wholesale and retail prices. The direction of the casual relationship indicates that the wholesale and retail prices of imported onions lead to the wholesale and retail prices of local onions. A clear understanding of the onion market, how prices move between market actors, and its role in determining market price interaction could be gained by analyzing the asymmetric relationship between the local and imported onion prices. As a result, significant policy recommendations could be made to control the onion price in Bangladesh.