Melbourne Institute Working Paper Series Database (1984 - 2010)

Melbourne Institute Working Paper No. 18/2004

Local Knowledge Spillovers in the Indonesian Manufacturing Industry

by

Bee Yan Aw and Alfons Palangkaraya

Date: August 2004

Abstract: Theoretical models have long shown that knowledge spillovers are of great economic importance to sustained economic growth and innovation and that these spillovers may be facilitated by physical and technological proximity. However, local knowledge spillovers have not been identified using data from developing countries. In this paper, we examine the relationship between knowledge spillovers and both technological and geographical proximities using micro panel data of Indonesian manufacturing plants between 1990 and 1995. We find both physical and technological proximity are significant. Knowledge spillovers are stronger among plants in the same industrial sector and their magnitude decreases monotonically with geographical distance. Theoretical models have long shown that knowledge spillovers are of great economic importance to sustained economic growth and innovation and that these spillovers may be facilitated by physical and technological proximity. However, local knowledge spillovers have not been identified using data from developing countries. In this paper, we examine the relationship between knowledge spillovers and both technological and geographical proximities using micro panel data of Indonesian manufacturing plants between 1990 and 1995. We find both physical and technological proximity are significant. Knowledge spillovers are stronger among plants in the same industrial sector and their magnitude decreases monotonically with geographical distance.

 

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