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All Journal Diponegoro Journal of Economics Ekonomi dan Bisnis
Benny Imantria
Faculty of Economics and Business, Diponegoro University, Semarang, Indonesia
Economics, Econometrics & Finance

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Economic Growth in Central Java: Does Manufacturing Industry Agglomeration Matter? Benny Imantria
Diponegoro Journal of Economics Vol 13, No 4 (2024)
Publisher : Universitas Diponegoro

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.14710/djoe.48051

Abstract

The manufacturing industry agglomeration in Central Java has experienced growth and has played an important role in increasing production efficiency. However, Central Java's contribution to Indonesia's GDP (GRDP) has declined, indicating early signs of deindustrialization. This study aims to identify manufacturing industry agglomeration and its effect on economic growth in Central Java. The data sample consists of 490 observations from 35 districts/cities during the period 2010-2023, analyzed using panel data regression with a fixed effects model. This study presents a novelty in the form of independent variables representing distribution and consumption aspects, as well as a more recent and extended observation period. The study found that medium-level manufacturing industry agglomeration occurs only in Jepara, while low-level manufacturing industry agglomeration occurs in Kudus, Pekalongan, Pekalongan City, Purbalingga, Sukoharjo, Semarang, Klaten, Batang, Kebumen, Karanganyar, Salatiga City, Surakarta City, Semarang City, Temanggung, and Boyolali. Manufacturing industry agglomeration has a non-significant positive effect on economic growth, while gross fixed capital formation (GFCF), labor force, average years of schooling, capital expenditure, and minimum wage have a significant positive effect on economic growth. Policymakers are encouraged to promote further manufacturing industry agglomeration and provide public goods that support both manufacturing industry agglomerations and economic growth.
Determinants of Manufacturing Industry Agglomeration in Indonesia Benny Imantria
Ekonomi dan Bisnis Vol 12 No 2 (2025): EKONOMI DAN BISNIS
Publisher : Fakultas Ekonomi dan Bisnis, Universitas Pembangunan Nasional Veteran Jakarta

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.35590/jeb.v12i2.10367

Abstract

Purpose: This study aims to identify determinants of manufacturing industry agglomeration in Indonesia. Design/methodology/approach: Data used consists of 34 provinces over the period 2015-2023, which are analyzed using panel data regression with a fixed effect model. Findings: This study found that manufacturing industry agglomeration has different determinants in each region. Average years of schooling, road infrastructure, wage, and per capita income have a significant positive effect, labor force and labor productivity have a significant negative effect, while FDI has no significant effect on manufacturing industry agglomeration in Indonesia. Furthermore, this study also found that there are diseconomies of agglomeration where manufacturing firms begin to relocate and spread out from the agglomeration economic area. Research limitations/implications: This study only identifies the determinants of manufacturing industry agglomeration from the perspectives of production, distribution, and consumption. It has not yet addressed the diseconomies of agglomeration. Additionally, spatial analysis methods have not been used to determine the impact of economic agglomeration on neighboring provinces. Future studies could examine how technology, trade openness, migration, and institutions affect manufacturing industry agglomeration in Indonesia. Additionally, the threshold at which agglomeration leads to diseconomies also needs to be identified. Practical implications: In order to enhance labor absorption and labor productivity, policymakers are expected to increase the allocation of FDI to manufacturing industry and reduce skill mismatches. Furthermore, to attract private sector investment and create manufacturing industry agglomerations, the government needs to accelerate infrastructure development outside Java. Originality/value: Novelty of this study compared to previous studies lies in the independent variables representing production, distribution, and consumption activities. Paper Type: Research Paper Keywords: Agglomeration economies, Deindustrialization, Economic growth, Labor, Manufacturing industry.
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