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The Importance of Agglomeration Economies and Technological Level on Local Economic Growth: the Case of Indonesia

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Abstract

The centralised regime and variation of resources have led persistent regional disparities in Indonesia. Presently, there is lack of study that examines the impact of agglomeration economies and technology of firm establishment on regional growth in Indonesia. This paper applies agglomeration economies, approximated using proxy variables of concentration of four largest sectors (CR4), specialisation (LQ), diversity (DIV) and competition (COM) variables and technological capacity, approximated by total factor productivity (TFP), to explain the impact of firm establishment on economic growth. The paper found that districts with less specialisation and more advance technology would have higher economic growth. The paper recalls the importance of higher share of high-tech industry and a more spatial dispersion of industry to accelerate economic growth.

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Notes

  1. Technology readiness index refers to the market-ready level of a technology product. Please see Mankins (1995).

  2. http://www.djpk.depkeu.go.id/

  3. https://databank.worldbank.org/reports.aspx?source=1266

  4. This is done using STATA’s built-in ‘collapse’ command, and the level of TFP of districts is simply the mean value of plants’ TFP within the district.

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  1. Urban and Regional Planning Program, School of Architecture, Planning and Policy Development (SAPPD), Institut Teknologi Bandung (ITB), Jl. Ganesha No.10, Bandung, 40132, Indonesia

    Adiwan F. Aritenang

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Aritenang, A.F. The Importance of Agglomeration Economies and Technological Level on Local Economic Growth: the Case of Indonesia. J Knowl Econ 12, 544–563 (2021). https://doi.org/10.1007/s13132-021-00735-8

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