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The effects of agglomeration economies on technical efficiency of manufacturing firms: evidence from Indonesia

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  • Wahyu Widodo
  • Ruhul Salim
  • Harry Bloch

Abstract

This article examines the effects of agglomeration economies and industrial structure upon firm-level technical efficiency in the Indonesian manufacturing industry over the period 2004-2009. A stochastic production frontier and three channels of agglomeration economies consisting of specialization, diversity and competition are used. The empirical results show that the effects of specialization and diversity upon firm-level technical efficiency are positive and negative, respectively, indicating that specialization is more favourable than diversity for stimulating firms' technical efficiency. Competition has a positive sign, showing that region with high levels of competition tend to be more conducive in accelerating firm-level technical efficiency. In terms of firm location, both dummy for urban region and industrial complex turn out to be positive, indicating that firms located in both areas are experienced higher technical efficiency. Both firm size and age also have positive effect upon technical efficiency.

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  • Wahyu Widodo & Ruhul Salim & Harry Bloch, 2015. "The effects of agglomeration economies on technical efficiency of manufacturing firms: evidence from Indonesia," Applied Economics, Taylor & Francis Journals, vol. 47(31), pages 3258-3275, July.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:31:p:3258-3275
    DOI: 10.1080/00036846.2015.1013614
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    7. Sunhyung Min & Kwansoo Kim, 2024. "Do peers and agglomeration affect farm efficiency?," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 70(8), pages 395-405.
    8. Mingzhi Zhang & Xiangyu Zhou & Chao Chen & Jianxu Liu & Jiaxi Li & Fuying Huan & Bowen Wang, 2023. "Enterprise Spatial Agglomeration and Economic Growth in Northeast China: Policy Implications for Uneven to Sustainable Development," Sustainability, MDPI, vol. 15(15), pages 1-17, July.
    9. Mohammad Zeqi Yasin & Miguel Angel Esquivias & Nur Arifin, 2022. "Foreign Direct Investment And Wage Spillovers In The Indonesian Manufacturing Industry," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(Special I), pages 125-160, March.
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