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

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Figure 5.3: Ratio <strong>of</strong> wholesale to retail prices for wheat grade 1<br />

1.2<br />

1<br />

0.8<br />

0.6<br />

0.4<br />

0.2<br />

0<br />

6.03.2002<br />

13.03.2002<br />

20.03.2002<br />

27.03.2002<br />

3.04.2002<br />

10.04.2002<br />

17.04.2002<br />

24.04.2002<br />

2.05.2002<br />

12.05.2002<br />

19.05.2002<br />

26.05.2002<br />

4.06.2002<br />

11.06.2002<br />

18.06.2002<br />

27.06.2002<br />

3.07.2002<br />

10.06.2002<br />

17.07.2002<br />

24.07.2002<br />

31.07.2002<br />

Figure 5.4: Ratio <strong>of</strong> wholesale to retail prices for white maize<br />

1.2<br />

1<br />

0.8<br />

0.6<br />

0.4<br />

0.2<br />

0<br />

6.03.2002<br />

13.03.2002<br />

5.1.3. Market <strong>in</strong>tegration test<br />

20.03.2002<br />

27.03.2002<br />

3.04.2002<br />

10.04.2002<br />

17.04.2002<br />

24.04.2002<br />

2.05.2002<br />

12.05.2002<br />

19.05.2002<br />

26.05.2002<br />

4.06.2002<br />

Maize w hite<br />

11.06.2002<br />

18.06.2002<br />

27.06.2002<br />

3.07.2002<br />

10.06.2002<br />

17.07.2002<br />

24.07.2002<br />

31.07.2002<br />

<strong>The</strong> most important method <strong>of</strong> analyz<strong>in</strong>g <strong>in</strong>tegration is co-<strong>in</strong>tegration. Co-<strong>in</strong>tegration means<br />

that (i) two variables, P wit and P rit (wholesale and retail prices, respectively), are each nonstationary<br />

<strong>in</strong> levels but stationary <strong>in</strong> first difference, P wit I (1) and P rit I (1). <strong>The</strong>re exists a<br />

l<strong>in</strong>ear comb<strong>in</strong>ation between these two series, which is stationary, P wit --P rit I (0). Hence the<br />

first step <strong>of</strong> co-<strong>in</strong>tegration is determ<strong>in</strong><strong>in</strong>g whether the series are stationary or not.<br />

In order to undertake stationary tests, we used the Augmented-Ducky-Fuller (ADF) method<br />

(Enders 1995; Gujarati 1998 This method tests the null hypothesis that P t is non-stationary by<br />

calculat<strong>in</strong>g a t-statistic for β = 0 <strong>in</strong>:<br />

ΔP<br />

t<br />

= α + βP<br />

n<br />

t− 1<br />

+ φt<br />

+ ∑δ<br />

k<br />

ΔPt<br />

−k<br />

+ ε<br />

t<br />

k = 2<br />

………………………………………………(5.1)

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