Transportation Costs in Archipelagos: Evidence from Indonesia

Discussion Papers

No.756

by Kazunobu Hayakawa, Ikumo Isono, and Satoru Kumagai

April 2019

ABSTRACT

In this paper, we empirically examine the effects of domestic transportation costs on product prices in an archipelagic country, namely, Indonesia. Specifically, we investigate the province-level price of televisions. Our analysis reveals that maritime transportation is more costly than land transportation. For example, a 1% increase in distance in maritime and land transportation increases a product price by 0.08% and 0.02%, respectively. This result implies that the geographical concentration or agglomeration of industries is much costlier in archipelagic countries. In other words, enjoying agglomeration effects is more difficult for archipelagic countries compared with single-island countries; in this sense, archipelagic countries have a topographical disadvantage.

Keywords: Price, Indonesia, Transport

JEL classification: F15, F53

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