Firm Agglomeration and Aggregate Fluctuations

Discussion Papers

No.786

by Yoshihiro Hashiguchi and Takayuki Higashikata

May 2020

ABSTRACT

This study uses Indonesian plant-level manufacturing data from 2000 to 2014 to examine the role of individual firms located in agglomeration areas in generating aggregate fluctuations. While previous studies have used a method to decompose aggregate fluctuations into macroeconomic (sectoral) and firm-specific components, this paper illustrates an approach to further decompose the firm-specific component into higher and lower agglomeration groups. Our results suggest that plant-specific fluctuations in higher agglomeration areas have a greater impact on aggregate fluctuations than those in lower agglomeration areas, and the interaction or co-movements of plants in higher agglomerations areas have a significant role to drive aggregate fluctuations.

Keywords: Aggregate fluctuation, firm agglomeration, plant-level data, Indonesia

JEL classification: E23, E32, R11, R12

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