Price transmission for natural rubber: India integration with world markets

Abstract

This paper, using daily price series during the period 2004-2017, analyses the price integration between global and national rubber markets in India. The study ultimately aims at producing evidence based claims on the effects of 2008 financial crisis in horizontal price transmission efficiency from global market to domestic rubber markets, for which we carry out our estimation procedure separately for two distinct, no overlapping time slots - pre-recession and post-recession periods. The cointegration procedure administered in the research finds higher degree of price integration between markets until recession. The rubber price elasticity coefficient is almost halved during the resilient phase which could partially due to the increased use of low cost synthetic substitute to natural rubber. The disruption of arrival of new stocks as a result of the recently initiated reforms like demonetisation and GST in India could also have affected the degree of market integration. The study concludes with a suggestion that the emerging markets like India should encourage their domestic agriculture production and limit dependency on world markets to develop an environment encouraging equity in sustainable economic growth.

Keywords

• natural rubber
• price transmission
• cointegration