Departures from the hypothesis of integration persist for all products but tur arhar and moong, once controlling for the considered determinants. This points to unobserved factors that matter for integration. For the cases of tur arhar and moong, we cannot reject the hypothesis that the law of one price holds after controlling for transport costs. From the estimates in Table 20 we device a statistical test for the law of one price. The null hypothesis is that the law of one price holds. Therefore, after controlling for the determinants, we expect the fixed effects plus the constant term to be statistically equal to zero. We report the test statistics in Table 22. We test all commodities together and each commodity individually. We adjust the individual using the Bonferroni method that corrects for the fact that when testing individual hypothesis there is a random probability of rejection because of the number of tests. When testing all the commodities together we reject the hypothesis of the law of one price holding for every good. When testing this hypothesis by commodity, we find that, for tur arhar and moong, price deviations are equal to zero once controlled for transport costs.

## _The role of consumers’ preferences and local production_

For a subset of the sample we measure local production and consumption preferences **.** We rely on household surveys and local production statistics to test for the role of consumption and production on the deviations from the law of one price. Because data on consumption and production patterns are not available across all district/states and commodities, these variables are included in an alternative specification (reported in the last two columns in Table 20).

Consumer preferences play an important role in retail markets. The marginal effect of increasing the consumption share of a given commodity by 1 percentage point is correlated with a reduction of deviations from the law of one price of 1.7 percentage points. The production variable is not statistically significant, and it is not retained in the final model.

Commodities for which there is strong demand have lower deviations from the law of one price. In Table 20, we report the effect of production and consumption on departures from the law of one price. While production plays no significant role, consumption shares are negatively correlated with deviations from the law of one price.

In conclusion, spatial frictions dominate the failures of the law of one price in retail markets. The most important determinant of departures from the law of one price is transport costs. Consumer preferences and commodity fixed effects explain the rest of the variation.

# Wholesale Markets

In this section we present the results on the determination of price integration for wholesale markets. The four factors under scrutiny are transport costs, information frictions, nominal rigidities and intervention.

## _Multivariate Analysis of Drivers of Price Integration in Wholesale Markets_

Two main messages emerge from the analysis of wholesale markets. First, three factors explain departures from the integration hypothesis for the case of wholesale markets: transport costs, information frictions, and price stickiness. Second, departures of the law of one price remain, after controlling for these determinants, except for wheat and mustard oil. In addition to commodity fixed effects, three variables play a role explaining departures from integration. These are distance (proxy for transport costs, wireless phone penetration (proxy for information availability) and price stickiness. The fit of this model is almost twice as good as for that fitted to retail, with the model explaining 70 percent of the variance. Results are presented in Table 21.

Transport costs play, here again, a crucial role in explaining departures from integration, in this case with a stronger effect than in retail markets. Results suggest that adding 1,000 km of distance between two districts adds a 10% to the price difference. Using travel times as an alternative proxy for transport costs yields a similarly economically significant result: a 10 % difference in prices is observed for districts that are 24‐hour away from each other, in terms of the time it takes to travel. Notice that the 34