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Productivity and human capital agglomeration: evidence from indonesian cities

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  • Hashiguchi, Yoshihiro
  • Higashikata, Takayuki

Abstract

Using Indonesian plant-level manufacturing data for 1996 and 2006, this study estimates the external benefits of human capital investment. The external benefits are identified from the relationship between plant-level total factor productivity (TFP) and geographical human capital agglomeration with controlling for workers' skill levels within a plant. The endogeneity problem in the human capital agglomeration is addressed by the instrumental variable (IV) method. We construct the IV by using the geographical distribution of European population in colonial Indonesia. Our IV estimates suggest that human capital agglomeration has a boosting effect on productivity, implying the existence of human capital externalities.

Suggested Citation

  • Hashiguchi, Yoshihiro & Higashikata, Takayuki, 2022. "Productivity and human capital agglomeration: evidence from indonesian cities," IDE Discussion Papers 849, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper849
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    References listed on IDEAS

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    More about this item

    Keywords

    Human capital externalities; plant-level data; Population census in colonial Indonesia;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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