IDEAS home Printed from https://ideas.repec.org/a/spr/apjors/v9y2025i2d10.1007_s41685-025-00373-x.html
   My bibliography  Save this article

Regional proliferation in Indonesia: impact on manufacturing outcomes and firm survival

Author

Listed:
  • Ana Uluwiyah

    (Universitas Indonesia)

  • Nachrowi Djalal Nachrowi

    (Universitas Indonesia)

  • Chaikal Nuryakin

    (Universitas Indonesia
    Faculty of Economics and Business, Universitas Indonesia)

Abstract

This study examined the effects of regional proliferation resulting from Indonesia’s decentralization policies, with a focus on the formation of new districts and cities. The analysis used longitudinal data and applied a difference-in-differences (DiD) model and event study approach to evaluate the impacts of these policies on firm performance and growth. The findings showed that regional proliferation initially attracts industries to newly created areas, but firm performance may decline in the long term. Productivity and output showed improvements in the early years following proliferation, particularly during periods such as local elections. The ability of new regions to utilize their autonomy effectively varied, with some regions developing quickly while others faced challenges. Overall, this research provides causal evidence that decentralization can stimulate business productivity and industrial growth, although long-term support and strategic policy implementation remain crucial for the success of newly formed regions.

Suggested Citation

  • Ana Uluwiyah & Nachrowi Djalal Nachrowi & Chaikal Nuryakin, 2025. "Regional proliferation in Indonesia: impact on manufacturing outcomes and firm survival," Asia-Pacific Journal of Regional Science, Springer, vol. 9(2), pages 419-447, June.
    • Handle: RePEc:spr:apjors:v:9:y:2025:i:2:d:10.1007_s41685-025-00373-x
    DOI: 10.1007/s41685-025-00373-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s41685-025-00373-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s41685-025-00373-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Aviad Pe'er & Ilan Vertinsky & Thomas Keil, 2016. "Growth and survival: The moderating effects of local agglomeration and local market structure," Strategic Management Journal, Wiley Blackwell, vol. 37(3), pages 541-564, March.
    2. Henry Aray & Luis Pedauga, 2024. "The relationship between decentralization and economic growth across regimes," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 72(1), pages 1-25, January.
    3. Davis, James C. & Henderson, J. Vernon, 2003. "Evidence on the political economy of the urbanization process," Journal of Urban Economics, Elsevier, vol. 53(1), pages 98-125, January.
    4. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
    5. Dani Rodrik, 2016. "Premature deindustrialization," Journal of Economic Growth, Springer, vol. 21(1), pages 1-33, March.
    6. Shenghao Gao & Liming Wang & Ningyue Liu & Min Zhang, 2019. "Fiscal decentralization and corporate investment: empirical evidence from China," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 22(1), pages 51-68, January.
    7. Yoshihiro Hashiguchi & Kiyoyasu Tanaka, 2015. "Agglomeration and firm-level productivity: A Bayesian spatial approach," Papers in Regional Science, Wiley Blackwell, vol. 94, pages 95-114, November.
    8. Zuhairan Yunmi Yunan & Ben Freyens & Yogi Vidyattama & Itismita Mohanty, 2023. "Spread of corruption in Indonesia after decentralisation: a spatiotemporal analysis," Oxford Development Studies, Taylor & Francis Journals, vol. 51(2), pages 198-215, April.
    9. Martinez-Vazquez, Jorge & McNab, Robert M., 2003. "Fiscal Decentralization and Economic Growth," World Development, Elsevier, vol. 31(9), pages 1597-1616, September.
    10. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    11. Karim Badr & Reham Rizk & Chahir Zaki, 2019. "Firm productivity and agglomeration economies: evidence from Egyptian data," Applied Economics, Taylor & Francis Journals, vol. 51(51), pages 5528-5544, November.
    12. Faguet, Jean-Paul, 2004. "Does decentralization increase government responsiveness to local needs?: Evidence from Bolivia," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 867-893, March.
    13. Arnab Bhattacharjee & Ornella Maietta & Fernanda Mazzotta, 2023. "Spatial agglomeration, innovation and firm survival for Italian manufacturing firms," Spatial Economic Analysis, Taylor & Francis Journals, vol. 18(3), pages 318-345, July.
    14. Henry Aray & Luis Pedauga, 2024. "Correction to: The relationship between decentralization and economic growth across regimes," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 72(1), pages 27-35, January.
    15. Peng Ji & Lilin Yuan, 2024. "Does geographical decentralisation harm the total factor productivity of firms in China?," Regional Studies, Taylor & Francis Journals, vol. 58(3), pages 537-551, March.
    16. Dionisius Narjoko, 2014. "Did Better Firms Enter the Indonesian Manufacturing Sector after the 1997-98 Crisis?," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 50(3), pages 371-391, December.
    17. Matt Saboe & Simon Condliffe, 2020. "Explaining New Firm Survival: Is the Firm, Owner, or Agglomeration at Fault?," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 46(2), pages 323-343, April.
    18. Shenghao Gao & Liming Wang & Ningyue Liu & Min Zhang, 2019. "Fiscal decentralization and corporate investment: empirical evidence from China," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 22(1), pages 51-68, January.
    19. Arthur F. Burns, 1930. "The Measurement of the Physical Volume of Production," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 44(2), pages 242-262.
    20. Patrick Heller, 2001. "Moving the State: The Politics of Democratic Decentralization in Kerala, South Africa, and Porto Alegre," Politics & Society, , vol. 29(1), pages 131-163, March.
    21. Li, Lei & Luo, Changtuo, 2023. "Does administrative decentralization promote outward foreign direct investment and productivity? Evidence from China," Economic Modelling, Elsevier, vol. 124(C).
    22. Henderson, J Vernon, 1983. "Industrial Bases and City Sizes," American Economic Review, American Economic Association, vol. 73(2), pages 164-168, May.
    23. Callaway, Brantly & Sant’Anna, Pedro H.C., 2021. "Difference-in-Differences with multiple time periods," Journal of Econometrics, Elsevier, vol. 225(2), pages 200-230.
    24. Seregious Be-ere, 2022. "Decentralization Reforms in Developing Countries Designed to Champion the Interests of Central Politicians and not Grassroots Development," Journal of Developing Societies, , vol. 38(1), pages 27-49, March.
    25. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    26. Jin, Haizhen, 2023. "Effects of decentralization on firm performance: Evidence from Chinese county-level quasi-experiments," Economic Modelling, Elsevier, vol. 119(C).
    27. Wooldridge, Jeffrey M., 2009. "On estimating firm-level production functions using proxy variables to control for unobservables," Economics Letters, Elsevier, vol. 104(3), pages 112-114, September.
    28. Fitria Fitrani & Bert Hofman & Kai Kaiser, 2005. "Unity in diversity? The creation of new local governments in a decentralising Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(1), pages 57-79.
    29. Jonathan Roth, 2022. "Pretest with Caution: Event-Study Estimates after Testing for Parallel Trends," American Economic Review: Insights, American Economic Association, vol. 4(3), pages 305-322, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alistair Dieppe, 2021. "Global Productivity," World Bank Publications - Books, The World Bank Group, number 34015, April.
    2. Fang, Xubing & Liu, Maotao, 2024. "Regional judicial capacity and corporate total factor productivity: Evidence from the establishment of circuit courts," Structural Change and Economic Dynamics, Elsevier, vol. 71(C), pages 465-489.
    3. Son, Sung Hyun & Kim, Young-Han, 2024. "Does cross-border M&A improve merging firms’ domestic performances?," Journal of Asian Economics, Elsevier, vol. 90(C).
    4. Exadaktylos, Dimitrios & Riccaboni, Massimo & Rungi, Armando, 2024. "Talents from abroad. Foreign managers and productivity in the United Kingdom," International Economics, Elsevier, vol. 177(C).
    5. Hoang, Manh Cuong & Schiller, Daniel, 2023. "Which firms benefit the most from agglomeration? New evidence from an emerging country with consistent measure of productivity," Journal of Asian Economics, Elsevier, vol. 86(C).
    6. Mateo Hoyos, 2024. "Tariffs and Growth: Heterogeneity by Economic Structure," Working Papers DTE 638, CIDE, División de Economía.
    7. Gupta, Apoorva & Stiebale, Joel, 2024. "Gains from patent protection: Innovation, market power and cost savings in India," DICE Discussion Papers 414, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    8. Klaas Mulier & Mike Mariathasan & Ozan Guler & Andrea Caggese, 2022. "Firing Costs and Productivity: Evidence from a Natural Experiment," Working Papers 1376, Barcelona School of Economics.
    9. Meng‐Ting Chen & Jiakai Zhang, 2024. "Political hierarchy spillovers: Evidence from China," Economic Inquiry, Western Economic Association International, vol. 62(1), pages 329-348, January.
    10. Ricardo Dahis & Christiane Szerman, 2023. "Decentralizing Development: Evidence from Government Splits," Monash Economics Working Papers 2023-18, Monash University, Department of Economics.
    11. Arne Henningsen & Guy Low & David Wuepper & Tobias Dalhaus & Hugo Storm & Dagim Belay & Stefan Hirsch, 2024. "Estimating Causal Effects with Observational Data: Guidelines for Agricultural and Applied Economists," IFRO Working Paper 2024/03, University of Copenhagen, Department of Food and Resource Economics.
    12. Yoko KONISHI & Yoshihiko NISHIMURA, 2013. "A Note on the Identification of Demand and Supply Shocks in Production: Decomposition of TFP," Discussion papers 13099, Research Institute of Economy, Trade and Industry (RIETI).
    13. Amiti, Mary & Duprez, Cédric & Konings, Jozef & Van Reenen, John, 2024. "FDI and superstar spillovers: Evidence from firm-to-firm transactions," Journal of International Economics, Elsevier, vol. 152(C).
    14. Nick Jacob & Giordano Mion, 2024. "On the productivity advantage of cities," Journal of Economic Geography, Oxford University Press, vol. 24(5), pages 679-705.
    15. Axel Demenet, 2016. "Does Managerial Capital also Matter Among Micro and Small Firms in Developing Countries?," Working Papers DT/2016/12, DIAL (Développement, Institutions et Mondialisation).
    16. Brugués, Felipe & Brugués, Javier & Giambra, Samuele, 2024. "Political connections and misallocation of procurement contracts: Evidence from Ecuador," Journal of Development Economics, Elsevier, vol. 170(C).
    17. Axel Demenet & Quynh Hoang, 2018. "How important are management practices for the productivity of small and medium enterprises?," WIDER Working Paper Series 69, World Institute for Development Economic Research (UNU-WIDER).
    18. Themann, Michael & Koch, Nicolas, 2021. "Catching up and falling behind: Cross-country evidence on the impact of the EU ETS on firm productivity," Ruhr Economic Papers 904, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    19. Ghulam, Yaseen, 2021. "Institutions and firms’ technological changes and productivity growth," Technological Forecasting and Social Change, Elsevier, vol. 171(C).
    20. Singer, Gregor, 2024. "Complementary inputs and industrial development: can lower electricity prices improve energy efficiency?," LSE Research Online Documents on Economics 122365, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    Regional proliferation; Decentralization; Firm outcomes; Firm survival;
    All these keywords.

    JEL classification:

    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:apjors:v:9:y:2025:i:2:d:10.1007_s41685-025-00373-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.