Relationship between World and Domestic Prices of Raw Jute in Bangladesh: A Cointegration Approach

Abstract

The study explores the dynamic relationship between world and domestic market prices of raw jute in Bangladesh. In the study, Johansen multivariate cointegration test was used, followed by error correction mechanism. Johansen cointegration model confirms that there is sufficient evidence to conclude that the Bangladeshi raw jute market is integrated with the world market in the long-run, while price signals are also being moderately transmitted in the short-run. In other words, there was a moderate level of market integration between world and Bangladeshi raw jute market following trade liberalization policies implemented by Bangladesh. Therefore, additional government policies are needed to further enhance market integration. Such policies should focus on the reduction of non-tariff barriers designed to avoid sudden restriction on raw jute export, improve infrastructure, marketing systems and market information.