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Abstract
Impelled by several strategies to ensure availability of food and access by all people
through the ministry of agriculture, the main objective of this study was to measure
the extent of dry beans market integration between surplus and deficit markets in
Kenya. These markets were, Nairobi, Nakuru, Eldoret and Kitale markets. Using
deflated and seasonally adjusted monthly average price data over 216 months (1994 to
2011) the study presented trade between Surplus and Deficit markets by applying Cointegration,
Granger causality and the TAR model to present the relationship between
the four markets. Results show that, all markets were integrated of order zero before
differencing; Co-integration test revealed that all the markets were co-integrated while
granger causality test confirmed independent causality with only one market link
showing bidirectional causality leading to symmetric price adjustment between Kitale
and Nairobi markets. Using the TAR model it was found out that it took
approximately 3 weeks for a shock in Nairobi to be transmitted to Kitale market thus
returning prices to their Threshold. The study concluded that, to increase the degree of
market integration, the government in partnership with the private sector can give
farmers incentives to produce dry beans in high production areas, improve marketing
infrastructure like roads and communication facilities. This will greatly reduce
transaction costs and improve price transmission. Also, it should avail market
information to farmers through information banks to help them know which markets
offer remunerative prices for their dry beans. In return traders will not take advantage
of increased production to lower returns accruing to farmers thus, enhancing the
degree of market integration.