Agglomeration Economy

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Agglomeration and Economic Growth 1. Introduction More than one century, the geographic experts, economic experts, city planner, business strategy experts, regional scientists and others social scientist have been tried to explain about “why” and “where” the location of economic activity. Imbalance distribution of regional economic activity in a country becomes the main concern (Kuncoro, 2002). According to Andersson and Loof in Widodo and Salim (2014), Agglomeration economies or location specific economies, are independent of single firm but accrue to all the firm located in the same area. Agglomeration economies are understood to provide economic reasons for clustering of economic activities as well as the tendency of the geographic concentration…show more content…
Nevertheless, there are several problems that arise. The first condition is to large the Indonesia’area so that the equity industry not optimal. Such as Bradlay and Gans (1996), said that agglomeration economies are externalities resulting from geographical proximity of economic activity. Furthermore, the existence of agglomeration economies can provide a positive influence on economic growth. As a result the areas included in the agglomeration generally have a higher growth rate than areas not agglomeration. Second, the important role of industrial sector had decreased when the ASEAN economic crisis hit Indonesia in 1997-1998, even though,on 1999-2000 there was performance improvement. Unfortunately, the performance improvement was not able to be maintained in the long run. The growth and the employment of manufacturing industry sectors to GDP continues to decrease. Indonesia’s industrial competitiveness also fell dramatically since implementation CAFTA ( China ASEAN Free Trade Area) in…show more content…
First, the endowment of factors which include the input of production factors, namely land, capital, labor. Second, the market and prices, given the market structure that is stiff and tend to be monopolized will cause rigidity for new players to enter the region. Third, raw materials and energy. Fourth, agglomeration, is the savings gained from the similar industry or related industries at the same location, as well as savings from the location of industries in urban areas. Investors tend to favor economic expansion in urban areas or regions that already have the facilities to support their economic activities, such as transportation facilities, power infrastructure, and the availability of labor. Fifth, is the factor of government policy. This is closely related to licensing or regulation that provides convenience and incentives for economic agents’ industry. While the latter factor, or sixth, is the cost of transport /

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