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Price Linkages Between Tea Markets: A Case Study for Colombo, Kolkata and Mombasa Auctions

Jerzy Rembeza and Kamila Radlińska

European Research Studies Journal, 2020, vol. XXIII, issue 2, 134-150

Abstract: Purpose: This paper aims to identify the price linkages among the three largest auction tea markets in Colombo (Sri Lanka), Kolkata (India), and Mombasa (Kenya). The hypothesis about the existence of long-term price linkages between markets was verified and the rate of short-term price reactions to exogenous price shocks on particular markets has been defined. Design/Methodology/Approach: Due to a diverse level of integration of particular variables, ARDL models were applied in the analyses. The bounds test was applied to test long-term price linkages. Short-term adjustment were described based on the restricted Error Correction Models. Findings: The obtained results indicated that market linkages were mainly long-term. Short-term price linkages among markets were poor. The Colombo market had the largest number of price maker features, but the Kolkata market behaved more like a price taker. The article analyzes average prices of tea in the individual markets. Price differences do not include the tea class quality. Practical Implications: The results indicate that price information on other markets is primarily relevant for long-term decisions. In short-term decisions, information on tea prices on other markets is of relatively small importance. Originality/Value: The indication of central markets is important for market participants. It is difficult to determine a priori whether and if so which markets are the most important in the price setting process. The obtained results indicate that the Colombo market was the leading market in the long term. In the short term, price information on other markets was primarily relevant for the Kolkata market.

Keywords: Tea; auctions; price linkages. (search for similar items in EconPapers)
JEL-codes: Q27 Q31 F14 F17 (search for similar items in EconPapers)
Date: 2020
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Handle: RePEc:ers:journl:v:xxiii:y:2020:i:2:p:134-150