Analysis of Urbanization in Indonesia using village census

IDE Research Bulletin

March 2017

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Background of objectives

The main purpose of this project is to construct our original Indonesian urban area dataset, and investigate the impact of urbanization on welfare level of Indonesian people and productivity of companies.
Indonesia has experienced ongoing urbanization, and it is estimated that over half of its population now lives in urban areas. The number of Indonesian urban population is estimated by Indonesian statistical office (BPS). BPS collects village/town level census data every three year, and calculates urban index for each community using population density, share of non-agricultural households, and amenity such as number of hotels, hospitals, schools and the like). Then, if villages have the index of 10 and over, those villages are defined as "urban" (see Figure 1).
This index give us a useful and important information, though it has problems too. One of the largest problem is that the index lacks information about the degree of agglomeration. For developed countries, we have urban area data such as Standard Metropolitan Statistical Area (SMSA) of United States, which take into consideration the connectivity of cities in an area. If we see the literature of urbanization, almost all quantitative analysis use this kind of more informative urban area dataset to estimate the effect of urbanization on productivity, welfare of residents and so on, though we have almost no data of this kind for developing countries. For example, if we turn our eyes to those analysis on urbanization in Indonesia, they usually only use the BPS defined urban/rural dichotomous variable, which makes it difficult to do an insightful research because of little information of the degree of agglomeration.