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Abstract
Long-run spatial price relationships in Indonesian rice markets and factors affecting the degree of market integration are
evaluated using multivariate cointegration tests with weekly price data for the 1982-1993 period. The analysis includes
evaluation of pre-self-sufficiency and post-self-sufficiency periods as well as for the entire period. The cointegration tests for
entire Indonesian rice market, represented by the nine most relevant price series, indicate that relative to the pre-selfsufficiency
period, the post-self-sufficiency period has a smaller degree of market integration. The change of the degree of
market integration over time indicates that rationalizing of the Indonesian rice price policy beyond 1984 rice self-sufficiency
has resulted in a less integrated market. This suggests that the policy shift has allowed the government to decrease its
intervention without significantly decreasing market integration, indicating that the private sector is responding to price signals
appropriately. It is possible that further reduction in intervention through widening the band between the floor and ceiling price
could be accomplished without greatly affecting market integration. Regression results show that government intervention in
terms of rice procurement significantly influenced market integration during the period of post-self-sufficiency (1985-1993)
and the entire period of 1982-1993. This indicates that this aspect of government intervention has had positive influences on
market integration, in contrast to distribution efforts, which were not found to be statistically significant. Procurement prices
may be high, and could perhaps be lowered, reducing program costs. Regional per capita income is also found to be positively
related to higher levels of market integration, suggesting that in periods of economic growth, government intervention may be
decreased, thereby reducing program costs. © 1998 Elsevier Science B.V. All rights reserved.