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Determinants of market integration and price transmission in Indonesia

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  • Varela, Gonzalo
  • Aldaz-Carroll, Enrique
  • Iacovone, Leonardo

Abstract

This paper investigates the determinants of price differences and market integration among Indonesian provinces, using data from retail cooking oil, rice and sugar markets during the period 1993-2007, and from wholesale maize and soybean markets during the period 1992-2006. The authors measure the degree of integration using co-integration techniques, and calculate average price differences. They use regression analysis to understand the drivers of price differences and market integration. For rice and sugar, they find wide market integration and low price differences, in the range of 5-12 percent. For maize, soybeans and cooking oil, they find less integration and higher price differences (16-22 percent). Integration across provinces is explained by the remoteness and quality of transport infrastructure of a province. Price differences across provinces respond to differences in provincial characteristics such as remoteness, transport infrastructure, output of the commodity, land productivity and income per capita.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6098.

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Date of creation: 01 Jun 2012
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Handle: RePEc:wbk:wbrwps:6098

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Keywords: Markets and Market Access; Transport Economics Policy&Planning; Access to Markets; Climate Change Economics; Emerging Markets;

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  1. Bob Baulch, 1997. "Transfer Costs, Spatial Arbitrage, and Testing for Food Market Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 477-487.
  2. Van Campenhout, Bjorn, 2007. "Modelling trends in food market integration: Method and an application to Tanzanian maize markets," Food Policy, Elsevier, vol. 32(1), pages 112-127, February.
  3. Barry K. Goodwin & Nicholas E. Piggott, 2001. "Spatial Market Integration in the Presence of Threshold Effects," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(2), pages 302-317.
  4. Rashid, Shahidur, 2004. "Spatial integration of maize markets in post-liberalized Uganda," MTID discussion papers 71, International Food Policy Research Institute (IFPRI).
  5. Sebastian Fossati & Fernando Lorenzo & Cesar M. Rodríguez, 2007. "Regional and international market integration of a small open economy," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 77-98, May.
  6. Ismet, Mohammad & Barkley, Andrew P. & Llewelyn, Richard V., 1998. "Government intervention and market integration in Indonesian rice markets," Agricultural Economics, Blackwell, vol. 19(3), pages 283-295, December.
  7. Badiane, Ousmane & Shively, Gerald E., 1998. "Spatial integration, transport costs, and the response of local prices to policy changes in Ghana," Journal of Development Economics, Elsevier, vol. 56(2), pages 411-431, August.
  8. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
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Cited by:
  1. Martina Kirchberger, 2014. "Natural disasters and labour markets," CSAE Working Paper Series 2014-19, Centre for the Study of African Economies, University of Oxford.
  2. Varela, Gonzalo J., 2012. "Incomplete, slow, and asymmetric price transmission in ten product markets of Bolivia," Policy Research Working Paper Series 6291, The World Bank.

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