Essays on Agglomeration Economies and Industrial Clusters

Date of Award


Degree Name

Doctor of Philosophy



First Advisor

Michael Ryan, Ph.D.,

Second Advisor

Christine Moser, Ph.D.

Third Advisor

Gregory Veeck, Ph.D.


Agglomeration economies, air pollution, location choice, nested logit, spatial panel


This dissertation explores the role of agglomeration economies in Indonesia’s manufacturing sector. In three chapters, I utilize different methods from three different perspectives.

The first chapter explores the role of localization and urbanization economies in manufacturing firms’ location decisions using Indonesia’s Industrial Survey from 2003 to 2013. The mixed conditional-multinomial logit model results indicate that, despite the small magnitudes, localization economies do attract firms. However, urbanization economies seem to discourage firms. On the other hand, sectoral-weighted import content has proven to be one of the most prominent attractors of firms, except for medium technology firms in Java. For foreign firms in Java, location decisions are entirely driven by agglomeration economies. GDP per capita, distance-weighted market potential, and minimum wage have negligible effects on firms’ location decisions. Moreover, there is little evidence to suggest that industrial areas successfully attract firms.

The second chapter analyzes the effects of agglomeration economies in Indonesia at the second-level administrative subdivision, the regency/city (kabupaten/kota), while controlling for province-level characteristics. The spatially focused measurements are developed from the 2018 firm-level Toyo Keizai’s Overseas Japanese Companies Database and the 2003-2013 firm-level Indonesia’s Industrial Survey. The nested logit model (NLM) indicates no hierarchical/sequential structure in Japanese affiliates’ location decisions and the conditional logit mode (CLM) seems more appropriate. The CLM estimations provide evidence of the positive effects of intra- and inter-industry Japanese-specific agglomeration economies at both the regency/city and province levels. GDP per capita and market potential have negligible effects on location choices.

Finally, the third chapter discusses the negative impact of air pollution from manufacturing agglomeration. Recent manufacturing agglomeration research finds mixed results on the effect of agglomeration on air pollution. This research explores the effect of manufacturing agglomeration on air pollution by utilizing spatial panel data models on 33 Indonesian provinces during 2003-2013. In particular, the spatial/temporal dependencies and the environmental factors of air pollution are considered. The results suggest a relatively small positive impact of manufacturing agglomeration and market potential on air pollution, which low-technology firms may drive. This may suggest that up to 2013, Indonesia was at the initial stage of agglomeration-pollution evolution, where environmental regulations are not as comprehensive as those in China. Tree cover loss and seasonal climate conditions seem to aggravate air pollution more.

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