Agglomeration, Transport, and Regional Development in Indonesia

39 Pages Posted: 12 Jan 2005

See all articles by Uwe Deichmann

Uwe Deichmann

World Bank - Development Research Group (DECRG)

Kai Kaiser

World Bank - Indonesia Resident Mission

Somik V. Lall

World Bank

Zmarak Shalizi

World Bank - Research Department

Date Written: January 2005

Abstract

How effective are public interventions in addressing significant regional disparities in formal manufacturing concentration in a developing economy? Deichmann, Kaiser, Lall, and Shalizi examine the aggregate and sectoral geographic concentration of manufacturing industries for Indonesia, and estimate the impact of factors influencing location choice at the firm level. They distinguish between natural advantage, including infrastructure endowments, wage rates, and natural resource endowments, and production externalities, arising from the co-location of firms in the same or complementary industries. The methodology pays special attention to empirically distinguishing the impact of measured production externalities from unobserved local characteristics. Depending on the sector, the authors find that a mix of both forms of regional advantage explains the geographic distribution of firms. Based on the estimated location choice model, they illustrate the potential impacts of policy interventions on manufacturing distribution by simulating the effectiveness of transport improvements on relocation of firms. The findings suggest that improvements in transport infrastructure may only have limited effects in attracting industry to secondary industrial centers outside of Java, especially in sectors already established in leading regions. The findings underscore the challenges for addressing the industrial fortunes of lagging regions, either through local decentralized policy interventions or national policies focused on infrastructure development.

This paper - a product of the Infrastructure and Environment Team, Development Research Group - is part of a larger effort in the group to examine the impacts of spatial policy interventions on the location and performance of economic activity.

Keywords: Infrastructure, Industry, Urban, Development

Suggested Citation

Deichmann, Uwe and Kaiser, Kai and Lall, Somik V. and Shalizi, Zmarak, Agglomeration, Transport, and Regional Development in Indonesia (January 2005). Available at SSRN: https://ssrn.com/abstract=647682

Uwe Deichmann (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

Kai Kaiser

World Bank - Indonesia Resident Mission ( email )

JI. Jenderal Sudirman Kav. 52-53
Jakarta 12190
Indonesia

Somik V. Lall

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/slall

Zmarak Shalizi

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/zshalizi

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