<![CDATA[Research Originality: This research provides novelty by employing nighttime light (NTL) intensity as an alternative proxy for local density and, for the first time, by adopting a geological instrumental variable (clay content) to address endogeneity in Indonesia. Research Objectives: This study aims to analyze the determinants of regional wage disparities in Indonesia, with particular focus on the role of agglomeration externalities. Research Methods: This study utilized microdata from BPS-Statistics Indonesia and big data from 2014 to 2024. The analysis employed the instrumental variable two-stage least squares (IV-2SLS) approach to address endogeneity in the local density variable. Empirical Result: The IV-2SLS estimates indicate that specialization has a positive and significant effect on regional wages, consistent with MAR externality theory, whereas diversity and competition have significant negative effects. Local density, proxied by both population density and NTL intensity, exerts a positive and significant effect on regional wages, with the NTL-based estimate yielding a higher elasticity, reflecting its superior capacity to capture actual urban economic density in Indonesia. Implications: These findings suggest that regional development policies should promote sectoral specialization based on each region's comparative advantage and support urban densification through infrastructure investment and secondary city development to reduce regional wage disparities in Indonesia. JEL Classification: J31, R12, C26]]>
