Uniting A Diverse Indonesia: Tackling Food Price Disparity Through Domestic Port Connectivity

The availability and improvement of port operations theoretically can lead to better connectivity that reduces logistics costs and subsequently prices. This study aims to illustrate how the availability and quality of port infrastructure helps reduce food price disparity in Indonesia. This research uses panel data on the provincial level from 2007 to 2015 and since port variables are time-invariant, Pooled Least Squares and Random Effect have been employed to determine the effect of port infrastructure availability on food prices. Furthermore, to address the endogeneity problem the Two-Stage Least Squares and Hausman-Taylor regression have also been employed. The estimation results show strong evidence that the availability of commercial ports does indeed influence food price and has the potential to generate a faster flow of goods, which may lead to lower distribution costs. Moreover, it was also found that rent-seeking behavior in weigh station management and unbalanced industrial development may lead to the problem of empty backhaul and to higher food prices. Specifically, this study provides new insights into the price control policies that exist in an archipelagic country such as Indonesia by providing empirical evidence where the supply-side policy, i.e. improving port infrastructure, is vital in reducing price disparity.