The Pakistan Development Review 44 : 4 Part II (Winter 2005) pp. 717–728 Testing Onion Market Integration in Pakistan HEMAN D. LOHANO, FATEH M. MARI, and RAJAB A. MEMON * I. INTRODUCTION Spatial market integration of agricultural products has been widely used to indicate overall market performance [Faminow and Benson (1990)]. In spatially integrated markets, competition among arbitragers will ensure that a unique equilibrium is achieved where local prices in regional markets differ by no more than transportation and transaction costs. Information of spatial market integration, thus, provides indication of competitiveness, the effectiveness of arbitrage, and the efficiency of pricing [Sexton, et al. (1991)]. If price changes in one market are fully reflected in alternative market, these markets are said to be spatially integrated [Goodwin and Schroeder (1991)]. Prices in spatially integrated markets are determined simultaneously in various locations, and information of any change in price in one market is transmitted to other markets [Gonzalez-Rivera and Helfand (2001)]. Markets that are not integrated may convey inaccurate price signal that might distort producers marketing decisions and contribute to inefficient product movement [Goodwin and Schroeder (1991)], and traders may exploit the market and benefit at the cost of producers and consumers. In more integrated markets, farmers specialise in production activities in which they are comparatively proficient, consumers pay lower prices for purchased goods, and society is better able to reap increasing returns from technological innovations and economies of scale [Vollrath (2003)]. Market integration of agricultural products has retained importance in developing countries due to its potential application to policy-making. Based on the information of the extent of market integration, government can formulate policies of providing infrastructure and information regulatory services to avoid market exploitation. Agricultural products especially vegetables are very perishable in nature, and are supplied to market within a short time period after harvesting. Onion is one of the most common vegetables in Pakistan and other countries of South Asia. The demand Heman D. Lahano is Associate Professor and Chairman, Department of Agricultural Economics, Sindh Agriculture Economics, Tando Jam, Sindh, Pakistan. Fateh M. Mari is Assistant Professor in the same Department and University. Rajab A. Memon is HEC Merit Professor, Centre for Rural Development Communication, Universtiy of Sindh, Jamshoro, Sindh, Pakistan.