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.