Determinants of Market Integration and Price Transmission in Indonesia

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.