Differences in agglomeration externalities and industrial regimes between locations generate performance differentials for their localized economic activities. For more than two decades, scholars have debated which externality is dominant for growth and under which regime. The present study aims to resolve this debate by analysing the influence of agglomeration economies on the growth of five-digit manufacturing sectors and firms in Indonesia between 2000 and 2009 discriminating cities and regencies. Specialization, competition, population density, human capital, and a set of varieties are employed. This is conducted shedding the light on policy implications of economic variety sectoral decomposition functional to revitalize Indonesian manufacturing growth after the Asian Financial Crisis, which substantially hits the Indonesian economy and manufacturing. Empirical evidence reveals that Indonesian policymakers should develop initiatives to support the competitiveness of key labour-intensive industries and manufacturing transformation towards knowledge-based productions. This can be achieved through promoting key specialised clusters characterized by large sectoral interconnectivity favouring inter and intra-industry knowledge spillovers, which allow underpinning the competitiveness of clusters and overcoming the two typical drawbacks of highly specialized locations (lock-in and lack of resilience). The formation of human capital, and the development of technologically advanced industries come to light as crucial drivers to construct a more conductive innovative environment and reduce manufacturing exposure to external industry-specific shocks. Population density and industrial diversity antithetically influence manufacturing growth in cities and regencies due to their economic heterogeneities.
Table of Contents
1 Introduction
1.1 Academic and policy contributions
1.2 Chapters’ outlines
2 New Economic Geography’s peculiarities and limitations
2.1 Introduction
2.2 The main characteristics and critics of the New Economic Geography
2.3 Agglomeration formation and development under NEG
2.4 Conclusions
3 The role of agglomeration externalities on economic growth
3.1 Introduction
3.2 Technological externalities
3.2.1 Knowledge exchange within specialized clusters and its shortcomings
3.2.2 The contributions and challenges of economic variety decomposition
3.2.2.1 Knowledge transmission across sectors
3.2.2.2 Portfolio diversification effect
3.2.2.3 Policy implications of economic variety sectoral decomposition
3.3 Competition externalities
3.4 Path-dependency mechanism of agglomeration externalities
3.5 Conclusions
4 Measuring agglomeration externalities and clustering identification
4.1 Introduction
4.2 Agglomeration externalities measures
4.2.1 Location quotient index
4.2.2 Competition index
4.2.3 Economic varieties decomposition
4.3 Detecting spatial clustering
4.3.1 Spatial autocorrelation
4.3.2 Spatial weight matrix
4.3.3 Global Moran’s I index of spatial dependence
4.3.4 Local spatial autocorrelation
4.4 Conclusions
5 Economic and policy transformations, and manufacturing revitalization challenges
5.1 Introduction
5.2 Indonesian economy and policy evolutions
5.2.1 The New Order Regime (1966-1998)
5.2.1.1 Rehabilitation and stabilisation (1967–1972)
5.2.1.2 Intervention and protectionism (1973-1981)
5.2.1.3 Rationalization and export orientation (1982–1996)
5.2.2 The Asian Financial Crisis (1997–1998)
5.2.3 Following the Asian Financial Crisis (1999-onwards)
5.2.3.1 Recovery (1999-2003)
5.2.3.2 Regional and industrial cluster policies (2004–onwards)
5.3 The rise and fall of manufacturing and the beginning of its transformation
5.3.1 Manufacturing transformation
5.4 The current manufacturing challenges
5.4.1 Innovation environment
5.4.2 Human capital formation
5.4.3 Urbanization trajectory
5.5 Conclusions
6 Data collected, manufacturing composition change and agents’ localization heterogeneity
6.1 Introduction
6.2 Data collected
6.3 Share of large and medium enterprises within manufacturing
6.4 Sectoral composition change within large and medium manufacturing industries
6.5 Trajectories of technology intensity industries and five-digit sectors within large and medium manufacturing operations
6.6 Agents’ localization between cities and regencies
6.6.1 Cities and regencies heterogeneity
6.7 Conclusions
7 The influence of agglomeration externalities on established manufacturing growth
7.1 Introduction
7.2 Empirical specification
7.3 Data construction and descriptive statistics
7.4 Estimation results
7.5 Conclusions
8 The dynamic impact of agglomeration externalities on manufacturing structure
8.1 Introduction
8.2 Empirical specification
8.3 Data construction and descriptive statistics
8.4 Empirical results
8.4.1 The impact of agglomeration externalities on manufacturing structure
8.4.2 The effect of agglomeration forces on technological relatedness
8.4.3 The role of (un)related variety on two-digit sectors
8.4.4 Robustness check: Endogeneity
8.5 Conclusions
9 Key embedded specialised clusters as drivers for growth
9.1 Introduction
9.2 Data construction and descriptive statistics
9.3 The persistent presence of hotspots
9.4 Discovering key embedded specialized clusters in Eastern Jakarta
9.5 Spatial clustering of industrial development
9.6 Conclusions
10 Conclusions, policy implications, and new research agenda
10.1 Introduction
10.2 Main findings and policy implications
10.3 Policy framework for manufacturing revitalization
10.4 Limitations and agenda for further research
Objectives and Research Themes
This study aims to investigate the influence of agglomeration economies on the growth of manufacturing sectors and firms in Indonesia, specifically analyzing the period between 2000 and 2009. The primary research objective is to resolve the academic debate regarding which agglomeration externalities are dominant for growth, by employing a decomposition of economic variety into related and unrelated varieties to evaluate their idiosyncratic effects. By distinguishing between cities and regencies, the research seeks to provide policy recommendations for the revitalization of the Indonesian manufacturing sector, particularly in the post-Asian Financial Crisis period.
- Analysis of agglomeration externalities (urbanization, specialization, competition, and varieties) on manufacturing growth.
- Decomposition of economic variety using the Frenken et al. (2007) entropy formula to distinguish between related and unrelated sectors.
- Empirical investigation of performance differentials in manufacturing growth across different administrative units (cities vs. regencies) in Indonesia.
- Identification of key embedded specialized clusters to support regional industrial development and policy design.
- Assessment of the role of innovation, human capital, and industrial composition in driving manufacturing competitiveness.
Excerpt from the Book
3.2.1 Knowledge exchange within specialized clusters and its shortcomings
Marshall (1890) examined pecuniary and technological externalities in order to explain the formation and development of economic agglomerations, and he theorized the concept of external economies in the production process within specialized clusters. Marshall (1890) argued that agglomeration externalities encourage firms to produce in proximity to other enterprises within the same industry. Since a specialized economic cluster allows enhancing network of relationships, firms’ innovation capabilities, labour pool and specialized workers, and reducing agents’ transaction and coordination costs. Afterwards, Glaeser et al. (1992) formalized and extended the Marshallian externalities combining the works of Arrow (1962) and Romer (1986), into what has become known as the Marshall-Arrow-Romer (MAR) model. The MAR model assumes that knowledge spillovers are predominantly industry-specific as intra-industry linkages foster innovation and growth within locations. There are numerous empirical examples of industrial specialization, for instance, the software industry in California’s Silicon Valley in the United States and Bangalore in India, automotive manufacturing in Detroit in the United States, biotechnology industry in Cambridge in the United Kingdom, and the ceramic tile and textile manufacturing in Sassuolo and Prato respectively in Italy.
Although it is expected higher economic performance within specialized places and this has been supported by numerous empirical evidence (see, for instance, De Groot et al., 2009, 2015), two important drawbacks are associated with highly specialized locations: lock-in effect and lack of economic resilience. Lock-in effect can be generated in the long run due to the reduction of know-how complementarity within the same industry. Knowledge transfer over time increases the cognitive proximity between firms reducing their diverse expertise causing a less effective learning process (Boschma, 2005; Nooteboom, 2000). However, the presence of strong knowledge bases and tight external linkages within an industrial cluster allow to overcome the risks associated with lock-in effect, since new external knowledge can spill over within a specialized cluster (Giuliani & Bell, 2005; Graf, 2011), what is called knowledge gatekeepers.
Summary of Chapters
1 Introduction: Provides an overview of the Indonesian economy, identifying major challenges for manufacturing revitalization and outlining the academic and policy contributions of the study.
2 New Economic Geography’s peculiarities and limitations: Investigates the main characteristics of the New Economic Geography framework, highlighting criticisms from the perspective of Evolutionary Economic Geography.
3 The role of agglomeration externalities on economic growth: Explores the theoretical link between agglomeration externalities and economic growth, emphasizing the role of economic variety decomposition.
4 Measuring agglomeration externalities and clustering identification: Discusses the methodology for measuring agglomeration externalities and identifying spatial clusters, combining discrete and continuous spatial indicators.
5 Economic and policy transformations, and manufacturing revitalization challenges: Reviews the evolution of the Indonesian economy and industrial policies, focusing on the impact of major crises on manufacturing.
6 Data collected, manufacturing composition change and agents’ localization heterogeneity: Details the datasets used for the study and describes the sectoral and geographical differences in industrial localization.
7 The influence of agglomeration externalities on established manufacturing growth: Presents empirical evidence on the impact of various agglomeration sources on the growth of established manufacturing firms and sectors.
8 The dynamic impact of agglomeration externalities on manufacturing structure: Investigates the dynamic relationship between agglomeration forces and the overall manufacturing structure using panel data analysis.
9 Key embedded specialised clusters as drivers for growth: Identifies and analyzes key embedded specialized clusters in Indonesia, with a specific focus on Eastern Jakarta as a case study.
10 Conclusions, policy implications, and new research agenda: Summarizes the key empirical findings and discusses policy implications for Indonesian manufacturing, while suggesting directions for future research.
Keywords
Agglomeration externalities, Manufacturing growth, Indonesia, Industrial specialization, Economic variety, Related variety, Unrelated variety, Technological spillovers, Knowledge-based economy, Cluster policy, Industrial policy, Regional development, Spatial clustering, Labour productivity, Innovation environment.
Frequently Asked Questions
What is the core focus of this research work?
This work examines the impact of different agglomeration externalities on the growth of manufacturing sectors and firms within Indonesia, specifically analyzing how these factors influence performance in cities versus regencies.
What are the primary themes covered in the book?
The research covers the economic role of agglomeration, the evolution of Indonesian manufacturing, the impact of sectoral specialization and variety, and the identification of regional clusters as drivers for growth.
What is the ultimate research objective of the study?
The study aims to resolve the long-term academic debate regarding which agglomeration externalities (such as specialization or variety) are most dominant for growth, while providing actionable policy recommendations for Indonesian manufacturing revitalization.
What scientific methodology is utilized?
The author employs economic variety sectoral decomposition (based on the entropy formula by Frenken et al., 2007) and spatial analysis techniques (such as Moran’s I and LISA) combined with regression models using panel data.
What does the main body of the work address?
The main chapters provide a transition from theoretical foundations of economic geography to empirical testing. This includes data construction, analysis of manufacturing composition changes, the impact of agglomeration forces on growth, and a spatial analysis of industrial development clusters.
Which keywords best characterize the study?
The study is characterized by concepts such as agglomeration externalities, manufacturing growth, economic variety, knowledge spillovers, industrial policy, and regional development within the context of the Indonesian economy.
How does the work distinguish between cities and regencies?
The author argues that cities and regencies possess different industrial structures, market densities, and levels of human capital. Consequently, the study analyzes them separately to avoid spurious inferences caused by ignoring this administrative and structural heterogeneity.
What is the significance of the "Key Embedded Specialized Clusters" discussed in Chapter 9?
The author identifies these as clusters that show high growth potential and significant contribution to the local manufacturing base. The research suggests that promoting such clusters is vital for regional economic stability and resilience, as they leverage inter-industry knowledge spillovers.
- Citar trabajo
- Roberto Ercole (Autor), 2017, The Impact of Agglomeration Externalities on Manufacturing Growth within Indonesian Locations, Múnich, GRIN Verlag, https://www.grin.com/document/416775
