After the marketing economy was introduced to China, the distribution of vegetables has been undergoing a rapid change among wholesale markets. The purpose of this paper was to study short- and long-term price integration of main vegetables wholesale markets in the Northern China. An Autoregressive Distributed Lag Model, which was used to study the price integration process in spatially separated spot markets, is derived to take into accounting the price integration levels between the related wholesale markets. Hypothesis testing concerns stationarity and both long- and short-run integration of the price series. Long-term integration is tested with Ravallion's restriction. Error correction models are used to test for short-run integration. It is concluded that the arbitrage system of the vegetables wholesale markets in the Northern China is not functioning yet, even though a wholesale market information system has been establishing since 1994 in China. The results of the price analysis between wholesale markets at different locations implied the weak market structures and market conduct in the Northern China. The following causes are very important to explain the result of this study! illegal transactions, weakness of traders' organization, lack of proper market information system and physical distribution system, and so on. This information can guide policy interventions to correct the market system.
