Industrial centralization in Indonesia

J. Vernon Henderson, Ari Kuncoro

Research output: Contribution to journalArticlepeer-review

66 Citations (Scopus)

Abstract

In certain situations, economic liberalization policies can increase the degree of spatial centralization of resources and spatial concentration of manufacturing in large metropolitan areas. In addition, historical patterns of location make it difficult to alter the degree of centralization. This article explores these issues by specifying and estimating a nested logit model of industrial location of manufacturing activity in Java, focusing on the unincorporated sector. The results indicate that plants strongly prefer locations with mature plants in related industries, which offer a built-up stock of local knowledge. In addition, the 1983 liberalization in Indonesia was associated with increased centralization of the unincorporated sector. Although the liberalization gave unincorporated firms better access to government and other centralized services, firms needed to centralize to take advantage of these opportunities because the bureaucratic process is centralized and communications are poor. The relative increased growth of the corporate sector following liberalization may also have helped to further draw unincorporated plants into centralized locations.

Original languageEnglish
Pages (from-to)513-540
Number of pages28
JournalWorld Bank Economic Review
Volume10
Issue number3
DOIs
Publication statusPublished - 1 Jan 1996

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