Causality and Cointegration between Indica and Japonica Rice

Abstract

This study analyzed the market integration between Indica and Japonica rice using causality and cointegration tests. The three main results are found in this study. First of all, five rice markets have no long-run relationship. Secondly, Indica rice prices lead global rice prices. Lastly, Korean and Japanese rice prices have no relationship with other rice prices. Japan opened its rice markets through tariffication in 1999. However, due to the high level of tariff on imported rice and income support programs, Japanese rice price has isolated from global rice prices. Thus, we may expect that Korean rice market would be temporarily isolated from international rice market even after the rice tariffication in the case that the government keep maintaining high tariff rates and protective measures. However, as border protection measures will be reduced continuously, Korea should improve production and marketing efficiencies of domestic rice in the future.