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Determinants of market integration and price transmission in Indonesia

Author

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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.

Suggested Citation

  • Varela, Gonzalo & Aldaz-Carroll, Enrique & Iacovone, Leonardo, 2012. "Determinants of market integration and price transmission in Indonesia," Policy Research Working Paper Series 6098, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6098
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    References listed on IDEAS

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    1. Ismet, Mohammad & Barkley, Andrew P. & Llewelyn, Richard V., 1998. "Government intervention and market integration in Indonesian rice markets," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 19(3), December.
    2. 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.
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Shahidur Rashid, 2004. "Spatial Integration of Maize Markets in Post-liberalised Uganda," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 13(1), pages 102-133, March.
    8. 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. 10, pages 77-98, May.
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    Cited by:

    1. Beag, F.A. & Singla, N., 2014. "Cointegration, Causality and Impulse Response Analysis in Major Apple Markets of India," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 27(2).
    2. Kirchberger, Martina, 2017. "Natural disasters and labor markets," Journal of Development Economics, Elsevier, vol. 125(C), pages 40-58.
    3. Martina Kirchberger, 2014. "Natural disasters and labour markets," CSAE Working Paper Series 2014-19, Centre for the Study of African Economies, University of Oxford.
    4. Shinyekwa, Isaac & Ijjo, Alex, 2016. "Determinants Of Domestic Food Price Differentials In Uganda: The Potential for and Constraints on Intra-County Trade," Research Reports 253556, Economic Policy Research Centre (EPRC).
    5. Martina Kirchberger, 2014. "Natural Disasters and Labour Markets," Economics Series Working Papers WPS/2014-19, University of Oxford, Department of Economics.
    6. Varela,Gonzalo J. & Cali,Massimiliano & Pape,Utz Johann & Rojas,Esteban, 2016. "Market integration and poverty : evidence from South Sudan," Policy Research Working Paper Series 7564, The World Bank.
    7. 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.

    More about this item

    Keywords

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

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