The Influence of Agglomeration Externalities on Manufacturing Growth Within Indonesian Locations

This paper investigates the influence of agglomeration externalities on the growth of manufacturing at the fivedigit sector and firm level in terms of employment, value added and labor productivity for Indonesian cities and regencies between 2000 and 2009. Urbanization, competition, specialization and a set of varieties are tested; in particular, a measure of variety without any sectorial linkages is decomposed into related and unrelated using the industrial classification and technology intensity industries in order to assess their idiosyncratic economic roles within locations. The findings of this research support the conceptualization that economic relatedness and diversity are the preponderant sources for sectoral and firm manufacturing growth within locations. Whereas, specialized clusters and competition are inversely related to manufacturing growth though the latter source fosters the sectoral employment within Indonesian regencies.