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Agglomeration, transport, and regional development in Indonesia

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  • Deichmann, Uwe
  • Kaiser, Kai
  • Lall, Somik V
  • Shalizi, Zmarak

Abstract

How effective are public interventions in addressing significant regional disparities in formal manufacturing concentration in a developing economy? The authors 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. Their 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.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3477.

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Date of creation: 01 Jan 2005
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Handle: RePEc:wbk:wbrwps:3477

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Keywords: Water and Industry; Environmental Economics&Policies; Economic Theory&Research; Banks&Banking Reform; Municipal Financial Management; Banks&Banking Reform; Water and Industry; Municipal Financial Management; Environmental Economics&Policies; Economic Theory&Research;

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  1. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 91-134, February.
  2. Carlos R. Azzoni, 2001. "Economic growth and regional income inequality in Brazil," The Annals of Regional Science, Springer, vol. 35(1), pages 133-152.
  3. Carlos A. Azzoni & Naercio Menezes-Filho & Tatiana de Menezes & Raúl Silveira-Neto, 2000. "Geography and Income Convergence among Brazilian States," Research Department Publications 3096, Inter-American Development Bank, Research Department.
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Citations

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Cited by:
  1. Lall, Somik V. & Mengistae, Taye, 2005. "Business environment, clustering, and industry location : evidence from Indian cities," Policy Research Working Paper Series 3675, The World Bank.
  2. Straub, Stephane, 2008. "Infrastructure and growth in developing countries : recent advances and research challenges," Policy Research Working Paper Series 4460, The World Bank.
  3. World Bank, 2007. "Bangladesh : Strategy for Sustained Growth, Volume 1. Summary Report," World Bank Other Operational Studies 7765, The World Bank.
  4. World Bank, 2005. "Thailand : Northeast Economic Development Report," World Bank Other Operational Studies 8808, The World Bank.
  5. Quigley, John M., 2008. "Urbanization, Agglomeration, and Economic Development," Berkeley Program on Housing and Urban Policy, Working Paper Series qt6tf2s100, Berkeley Program on Housing and Urban Policy.
  6. Yusuf , Shahid & Nabeshima, Kaoru, 2009. "Can Malaysia escape the middle-income Trap ? a strategy for Penang," Policy Research Working Paper Series 4971, The World Bank.
  7. Megha Mukim, 2011. "Industry and the Urge to Cluster: A Study of the Informal Sector in India," SERC Discussion Papers 0072, Spatial Economics Research Centre, LSE.

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