The Future of Smallholder Farming in Eastern Africa - Uganda ...

Table 6a--Unit root tests for price series in the preliberalization era
Market p Criterion ADF test
statistic
Null hypothesis (unit
root present)
Kiritiri (no trend) 0 AIC, SBC, HQC -1.563 Cannot reject
Kiritiri (with trend) 0 AIC, SBC, HQC -1.680 Cannot reject
Siakago (no trend) 0 AIC, SBC, HQC -1.422 Cannot reject
Siakago (with trend) 0 AIC, SBC, HQC -1.505 Cannot reject
Kitale (no trend) 0 AIC, SBC, HQC -2.144 Cannot reject
Kitale (with trend) 0 SBC, HQC -2.110 Cannot reject
Nairobi (no trend) 0 AIC, SBC, HQC 0.026 Cannot reject
Nairobi (with trend) 1 AIC, SBC, HQC -1.965 Cannot reject
Migori (no trend) 0 SBC, HQC -1.645 Cannot reject
Migori (with trend) 2 AIC, SBC, HQC -2.833 Cannot reject
Awendo (no trend) 0 AIC, SBC, HQC -0.933 Cannot reject
Awendo (with trend) 0 AIC, SBC, HQC -2.235 Cannot reject
95% critical value for the ADF statistic (no trend) -2.997
95% critical value for the ADF statistic (with -3.662
trend)
The next step involved differencing the price series and repeating the unit root test on the
price differences. The equations estimated were:
=
i, α + 0 δ 1 P + m
i, t − 1 ∑ = n
+
= α m Δ m Pi, t −m
U (6)
t
Δ 2 P t
Δ 2 P =
i, t α + 0 δ 1 P t
(7)
i 1
m 1
m n
m 1
, − + ∑ = =
+ α m Δ m P +
i, t −m
β 1 T U t
The model selection criteria suggest orders of augmentation of between zero and two with
most regressions being of order zero. In all cases, and regardless of the order of
augmentation chosen, the computed ADF statistics are well above the 95 percent critical
value of the test given at the last two rows of Tables 7a and 7b. Hence the hypothesis that the
first differences of the price series have unit roots is firmly rejected. From the evidence
provided by this test, it was concluded that the price series are integrated of order one--that is,
all price series are I(1). Once the order of economic integration was established, the next step
was to test for cointegration of the price series.