00074918.2014.896246

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Bulletin of Indonesian Economic Studies

ISSN: 0007-4918 (Print) 1472-7234 (Online) Journal homepage: http://www.tandfonline.com/loi/cbie20

Agglomeration Economies, Firm-Level Efficiency,

and Productivity Growth: Empirical Evidence from

Indonesia

Wahyu Widodo

To cite this article: Wahyu Widodo (2014) Agglomeration Economies, Firm-Level Efficiency, and Productivity Growth: Empirical Evidence from Indonesia, Bulletin of Indonesian Economic Studies, 50:2, 291-292, DOI: 10.1080/00074918.2014.896246

To link to this article: http://dx.doi.org/10.1080/00074918.2014.896246

Published online: 30 Jul 2014.

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Abstracts of Doctoral Theses on the Indonesian Economy 291

is one of this study’s proposed recommendations. Individual small farmers ind it dificult to meet the trading terms of supermarkets and hypermarkets, and therefore they cannot sell their products directly to modern retailers. Farmers’

groups help to connect their members with supermarkets and hypermarkets, and manage consistency by allocating and sharing production. They also serve as a communication channel between farmers and their customers.

This thesis is the irst integrated analysis of the effects of supermarkets and hypermarkets on the local economy. Its indings will help policymakers—in this

case, municipal governments—to manage the development of modern retail in their municipalities in order to increase the welfare of local producers by

provid-ing more beneits from the development of modern food retail. Such develop -ments do not seek to eliminate traditional retailers, but a lack of resources means that the latter cannot compete with supermarkets and hypermarkets. The study asserts that traditional retailers therefore need to reposition themselves by pro-viding convenience, good-quality products, and attractive product displays for their customers.

Agglomeration Economies, Firm-Level Eficiency, and Productivity Growth:

Empirical Evidence from Indonesia Wahyu Widodo (wahyuwid2002@yahoo.com)

Accepted 2013, Curtin University

Agglomeration, or the clustering of similar irms in one location, has characterised recent industrial development in Indonesia, but determining its effects on irm-level eficiency and productivity growth remains dificult. There exist few empir -ical studies of the agglomeration effects in the context of Indonesia. This thesis

examines whether location-speciic agglomeration economies have positive effects on irm-level eficiency and productivity growth in Indonesian manufacturing.

The beneits of agglomeration accrue to agglomerated irms mainly in the form of externalities that improve eficiency and productivity. The empirical analysis

focuses on three key features of agglomeration economies, namely Marshall– Arrow–Romer externalities (or specialisation), Jacobs’s externalities (or

diver-sity), and Porter’s externalities (or competition). It also analyses irm and industry characteristics thought to inluence irm-level eficiency and productivity growth, including variables for irm age, size, location, and market concentration both for

urban regions and for industrial complexes. In considering the characteristics of

speciic manufacturing industries, regions, and complexes, this thesis uses the

stochastic production frontiers approach to examine the effect of agglomeration

economies on irms’ productive eficiency levels. It subsequently uses the Färe–

Primont productivity index to measure productivity growth and its decomposi-tion, and it applies econometric estimations (using panel data) to investigate the effect of agglomeration economies on productivity growth.

The empirical results show evidence of positive specialisation effects and nega-tive diversity effects, indicating that specialisation is more favourable than

diver-sity for stimulating irm-level eficiency. They conirm that inter-irm knowledge

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292 Abstracts of Doctoral Theses on the Indonesian Economy

spillovers occur among agglomerated, homogeneous industries. The positive

effects of high levels of competition and of domination by small irms suggest that Porter’s externalities stimulate irm-level eficiency—competition drives irms to innovate, which in turn makes them more eficient and accelerates productivity growth. These effects were evident for irms in urban regions and in industrial complexes, which conirms that an adequate business environment and asso

-ciated infrastructure play a crucial role in improving irm-level eficiency. The results also show that irm age and irm size have a positive effect on irm-level eficiency, suggesting that older irms tend to be more eficient than younger irms and that larger irms tend to be more productive than smaller irms.

The decomposition analysis inds that technical change is the main source of productivity growth, and less so scale eficiency change and technical eficiency change. The year-on-year trend, however, shows that productivity growth luctu -ates. The motor vehicle industry most frequently achieves the highest level of productivity growth among industries in Indonesia. Testing the effects of agglom-eration economies on productivity growth suggests that specialisation is more conducive than diversity to improving productivity growth. The Indonesian government should therefore consider prioritising agglomeration in its spatial industrial policy, by focusing on encouraging agglomeration and increasing the competitiveness of agglomerated areas. Industrial complexes, for example, have

a positive effect on irm-level eficiency—sustained industrial development relies

on the continued development of such complexes, as well as of special economic zones and integrated economic development zones. The government should also consider fostering agglomeration in urban regions, which themselves promote productivity growth.

The Impact of Indonesia–China Trade Liberalisation on the Welfare of Indonesian Society and on Export Competitiveness

Sulthon Sjahril Sabaruddin (sulthon.sjahril@kemlu.go.id)

Accepted 2012, University of Indonesia

This dissertation evaluates the impact of a hypothetical 2009 bilateral trade

lib-eralisation between Indonesia and China on the welfare of Indonesian society

and the competitiveness of Indonesia’s exports. To do so, it uses structural path analysis, the multiplier effects of Indonesia’s Social Accounting Matrix (2008), and a Software for Market Analysis and Restrictions on Trade (SMART) model, together with other analytical tools, including product mapping analysis, the nor-malised revealed comparative advantage indicator, and the trade balance index. It assumes that tariffs would be reduced to zero across all tariff lines and does not evaluate non-tariff barriers.

An increase in Indonesia’s consumer surplus and a decrease in its deadweight

loss since 2009 suggest that trade liberalisation with China would have a posi -tive impact on Indonesian society, largely because of its dismantling of tariffs, which would increase the disposable income of all Indonesian households. Yet