Regional proliferation in Indonesia: impact on manufacturing outcomes and firm survival

Abstract

This study examined the effects of regional proliferation resulting from Indonesia’s decentralization policies, with a focus on the formation of new districts and cities. The analysis used longitudinal data and applied a difference-in-differences (DiD) model and event study approach to evaluate the impacts of these policies on firm performance and growth. The findings showed that regional proliferation initially attracts industries to newly created areas, but firm performance may decline in the long term. Productivity and output showed improvements in the early years following proliferation, particularly during periods such as local elections. The ability of new regions to utilize their autonomy effectively varied, with some regions developing quickly while others faced challenges. Overall, this research provides causal evidence that decentralization can stimulate business productivity and industrial growth, although long-term support and strategic policy implementation remain crucial for the success of newly formed regions.