Transportation Costs in Archipelagos: Evidence from Indonesia

Abstract

This paper empirically examines 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 expensive than land transportation. For example, a 1% increase in distance in maritime and land transportation increases the price of televisions 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 countries on a continent; thus, archipelagic countries have a topographical disadvantage.