This paper examines whether the wheat market is integrated across states in India, and concludes that the market is integrated in the long run. This long run integration, however, does not come from the free flow of goods across states in the country, but from the sharing of similar production technologies by farmers across states. The paper also shows that the market for wheat is not integrated in the short run. This implies that at a given time period there exist two prices for the same commodity, since transaction costs are the main barriers to market integration. The paper also estimates such transaction costs using transport and communication infrastructure indices across states, and concludes that there exist large variations resulting in high transaction costs.
