Domestic Market Integration

Arvind Virmani, Surabhi Mittal
JEL codes: 
Indian Council For Research On International Economic Relations Working Paper No. 183

The paper looks into the level of integration of commodity markets in India, across centres and states using consumer price data. It measures the extent to which domestic
markets for goods in India are integrated, and recommends policy options to facilitate integration. The paper addresses questions: Are domestic markets for goods integrated across states? Has market integration increased over time? What are the policy options to facilitate integration?

The paper tests the methodology proposed by Bradford and Lawrence (2004) on the consumer prices of goods in major states across India. This is then repeated using consumer price data at two points in time (1994 and 2004), allowing an assessment of whether Indian markets have integrated over time. Market integration is also tested for individual commodities across markets.

The annual consumer prices for commodities were compiled from the Labour Bureau series of average monthly consumer prices of commodities for Industrial workers across 70 constituent centres in 18 states and monthly data was compiled from the Indian Labour Journal, a monthly publication from Labour Bureau, Ministry of Labour
Government of India. Authors are thankful to Labour Bureau, Shimla for providing data on consumer prices at the disaggregated level.