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

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... 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. The Institute of Developing Economies (IDE) is a semigovernmental, nonpartisan, nonprofit research institute, founded in 1958. The Institute merged with the Japan External Trade Organization (JETRO) on July 1, 1998. The Institute conducts basic and comprehensive studies on economic and related affairs in all developing countries and regions, including Asia, the