Industrial park policy and regional industrialization in Indonesia

To revitalize its declining industrial sector, the Indonesian government introduced the Industrial Park Policy in 2009. We investigate the long-run effect of this policy on regional industrialization. Novel dataset containing detailed information of industrial parks is created, complemented with difference-in-differences estimation methods. We find that less developed regions benefit the most as they receive larger number of projects, affecting higher manufacturing share in the region at 0.068%. We further find the policy helps for closing inequality gap significantly by 0.006% and reducing unemployment at 0.248% in this region. Our findings suggest that the policy is instrumental in promoting not only regional industrialization but also quality of growth. To maximize the impact, policymakers should promote stronger inter-regional connectivity with the less developed regions as the country’s new industrial base.