Spatial market integration and the Covid-19 pandemic: Evidence from the potato markets of Nepal and India

We considered the Covid-19 pandemic as a reference period and examined the characteristics of spatial integration of potato markets, along with assessing the effect of the pandemic on cross-border market integration between Nepal and India. We created dyads of market pairs and analyzed ten years of monthly wholesale potato prices using a dyadic panel regression model and its extension within a difference-in-difference framework to identify causal effects. The results show heterogenous characteristics of market dyads in terms of price adjustment speed. We found a higher adjustment speed in Nepalese domestic markets than cross-border and Indian markets in general. Temporally, the market integration level was higher in the pre-pandemic period, especially in domestic markets, although it weakened during the pandemic before subsequently improving again. Interestingly, spatial integration across cross-border markets remained stable throughout the pandemic, supported by the results of the causal model. The findings suggest that arbitrage opportunities increased for the international supply chain and were found to be more robust than the domestic chain during the pandemic, despite having good production potential locally. This underscores the need for a resilient domestic supply chain in Nepal to safeguard against possible shock events and unfavorable bilateral relations. The paper proposes some important policy actions for building robust supply chain systems locally, especially focusing on interventions in physical and digital infrastructure, along with policy tools to promote fair and improved market access. Fig. Graphical Abstract (Source: Buccola, 1983; Sexton et.al., 1991; Amare et.al., 2023) • The spatial integration of potato markets of Nepal and India with reference to pandemic period was examined. • The presence of spatial market integration was observed in all the potato markets with heterogenous characteristics. • Price adjustment speed of domestic markets was found to be weakened during pandemic and local supply chain suffered substantially, whereas the cross-border market showed stable price adjustment speed throughout the period. • Interestingly, cross-border markets between Nepal and India performed well even during pandemic as verified by the causal model showing the robust international supply chain than the domestic chain. • Interventions in infrastructure and policy tools will help in developing a robust base of domestic supply chain needed for local food security of the country.