This demo demonstrates how to have connected (linked) dropdowns where the second dropdown gets binded via Ajax based on the selection of the first dropdown.

The technique requires client-side jQuery javascript, please refer to the PHP tab for implementation details.
<?php 
require_once '../../../../php/demo/tabs.php';
?>
<!DOCTYPE html>
<html>
  <head>
    <title>jqGrid PHP Demo</title>
    <link rel="stylesheet" type="text/css" media="screen" href="../../../../css/jquery-ui.css" />
    <link rel="stylesheet" type="text/css" media="screen" href="../../../../css/trirand/ui.jqgrid.css" />
    <link rel="stylesheet" type="text/css" media="screen" href="../../../../css/ui.multiselect.css" />
    <style type="text">
        html, body {
        margin: 0;            /* Remove body margin/padding */
        padding: 0;
        overflow: hidden;    /* Remove scroll bars on browser window */
        font-size: 75%;
        }
        
    </style>
    <script src="../../../../js/jquery.min.js" type="text/javascript"></script>
    <script src="../../../../js/trirand/i18n/grid.locale-en.js" type="text/javascript"></script>
         <script src="../../../../js/trirand/jquery.jqGrid.min.js" type="text/javascript"></script> <script type="text/javascript">         
    $.jgrid.no_legacy_api = true;
    $.jgrid.useJSON = true;
    $.jgrid.defaults.width = "700";
    </script>
     
    <script src="../../../../js/jquery-ui.min.js" type="text/javascript"></script>
  </head>
  <body>
      <div>
          <?php include ("grid.php");?>
      </div>
      <br/>
      <?php tabs(array("grid.php", "city.php"));?>
   </body>
</html>
grid.php.
<?php
require_once '../../jq-config.php';
// include the jqGrid Class
require_once ABSPATH."php/PHPSuito/jqGrid.php";
// include the driver class
require_once ABSPATH."php/PHPSuito/DBdrivers/jqGridPdo.php";
// Connection to the server
$conn = new PDO(DB_DSN,DB_USER,DB_PASSWORD);
// Tell the db that we use utf-8
$conn->query("SET NAMES utf8");

// Create the jqGrid instance
$grid = new jqGridRender($conn);
// Write the SQL Query
$grid->SelectCommand = 'SELECT CustomerID, CompanyName, Phone, PostalCode, Country, City FROM customers';
// Set the table to where you update the data
$grid->table = 'customers';
$grid->setPrimaryKeyId("CustomerID");
$grid->serialKey = false;

// Set output format to json
$grid->dataType = 'json';
// Let the grid create the model
$grid->setColModel();
// Set the url from where we obtain the data
$grid->setUrl('grid.php');
// Set some grid options
$grid->setGridOptions(array(
    "rowNum"=>10,
    "rowList"=>array(10,20,30),
    "sortname"=>"CustomerID"
));
$grid->setColProperty('CustomerID', array("editoptions"=>array("readonly"=>true)));
$grid->setColProperty('City', array("edittype"=>"select", "editoptions"=>array("value"=>" :Select")));
$grid->setSelect("Country","SELECT DISTINCT Country, Country FROM customers ORDER BY Country", true, true, false);
//$grid->setSelect("City","SELECT DISTINCT City, City FROM customers ORDER BY City", true, true, false);

// This event check if we are in add or edit mode and is lunched
// every time the form opens.
// The purpose of thris event is to get the value of the selected
// country and to get the values of the cityes for that country when the form is open.
// Another action here is to select the city from the grid
$beforeshow = <<< BEFORESHOW
function(formid)
{
    // get the value of the country
    var cntryval = $("#Country",formid).val();
    jQuery("#City",formid).html("<option>Select</option>");
    if(cntryval) {
        // if the value is found try to use ajax call to obtain the citys
        // please look at file file city.php
        jQuery.ajax({
            url: 'city.php',
            dataType: 'json',
            data: {q:cntryval},
            success : function(response)
            {
                var t="", sv="";
                var sr = jQuery("#grid").jqGrid('getGridParam','selrow');
                if(sr)
                {
                    // get the selected city from grid
                    sv = jQuery("#grid").jqGrid('getCell',sr,'City');
                    jQuery.each(response, function(i,item) {
                        t += "<option value='"+item.id+"'>"+item.value+"</option>";
                    });
                    // empty the select and put the new selection
                    jQuery("#City",formid).html("").append(t);
                    if(sv)
                    {
                        // select the city value
                        jQuery("#City",formid).val(sv).removeAttr("disabled");
                    }
                }
            }
        });
    } else {
        jQuery("#City",formid).attr("disabled","disabled");
    }
}
BEFORESHOW;

// With this event we bind a change event for the first select.
// If a new value is selected we make ajax call and try to get the citys for this country
// Note that this event should be executed only once if the form is constructed.

$initform = <<< INITFORM
function(formid)
{
    jQuery("#Country",formid).change(function(e) {
        var cntryval = $(this).val();
        if(cntryval) {
            jQuery("#City",formid).html("");
            jQuery.ajax({
                url: 'city.php',
                dataType: 'json',
                data: {q:cntryval},
                success : function(response)
                {
                    var t="";
                    jQuery.each(response, function(i,item) {
                        t += "<option value='"+item.id+"'>"+item.value+"</option>";
                    });
                    jQuery("#City",formid).append(t).removeAttr("disabled");
                }
            });
        }
    });
}
INITFORM;

// Enable navigator
$grid->navigator = true;
// Enable only editing
$grid->setNavOptions('navigator', array("excel"=>false,"add"=>true,"edit"=>true,"del"=>false,"view"=>false, "search"=>false));
// Close the dialog after editing
$grid->setNavOptions('edit',array("height"=>"auto","dataheight"=>"auto", "closeAfterEdit"=>true,"editCaption"=>"Update Customer","bSubmit"=>"Update", "viewPagerButtons"=>false));
$grid->setNavOptions('add',array("height"=>"auto","dataheight"=>"auto"));
// Bind the before show Form event in add and edit mode.
$grid->setNavEvent('edit', 'beforeShowForm', $beforeshow);
$grid->setNavEvent('add', 'beforeShowForm', $beforeshow);
// Bind the initialize Form event in add and edit mode.
$grid->setNavEvent('edit', 'onInitializeForm', $initform);
$grid->setNavEvent('add', 'onInitializeForm', $initform);
// Enjoy
$grid->renderGrid('#grid','#pager',true, null, null, true,true);

 city.php.
<?php
require_once '../../jq-config.php';
require_once ABSPATH."php/PHPSuito/DBdrivers/jqGridPdo.php";
$country = $_GET['q'];
if($country){
    try {
        $conn = new PDO(DB_DSN,DB_USER,DB_PASSWORD);
        $SQL =  "SELECT DISTINCT(City) id, City value FROM customers WHERE Country='".$country."' ORDER BY City";
        $collation = jqGridDB::query($conn, "SET NAMES utf8");
        $city = jqGridDB::query($conn, $SQL);
        $result = jqGridDB::fetch_object($city, true, $conn);
        echo json_encode($result);
    } catch (Exception $e) {
        echo $e->getMessage();
    }
}