TRENDS AND DETERMINANTS OF THE GEOGRAPHICAL DISTRIBUTION OF ECONOMIC ACTIVITIES: EVIDENCE FROM INDONESIAN MANUFACTURING

Abstract

This study analyzes the trends and determinant factors of vis-à-vis spatial distribution in Indonesian manufacturing during the period of 1990-2010. There is a long-term increasing trend of regional specialization driven by core regions in Java Island and by affluent regions outside of Java Island. Among resource-based and labor-intensive industries, there is a smooth declining trend of geographical concentration. An increasing trend in regional specialization and geographical concentration during the economic crisis is identified turns into a decreasing trend at the onset of setting up a decentralization policy and then pushed upward again. Finally, by applying spatially weighted Ellison-Glaeser (EG) Index, it is found that labor skills, export activities, and wage rates strongly determine the degree of agglomeration among Indonesian manufacturing industries.