INDUSTRIAL ESTATE, FIRMS’ PRODUCTIVITY, AND INTERNATIONAL TRADE RELATIONSHIP: THE CASE OF INDONESIAN MANUFACTURING FIRMS

Many believe that the industrial estate could encourage the industrial sector in developing countries due to its better infrastructure, access to supporting industries, and the market as well as technology and information spillover. These factors could lead to a higher productivity level and export activities of manufacturing firms inside the industrial estate. Some previous studies still provide a mixed result regarding the relationship between these three variables. Thus, this paper contributes to the related study by examining the relationship between an industrial estate and both productivity level and export activity in the case of Indonesian Manufacturing Firms. The paper introduces the practice of entropy balancing, one of matching methods along with firm-level data as a unit of analysis. A significant difference in the number of observations between firms inside and outside the industrial estate motivates the usage of matching methods technique, so the data become balanced. The treatment is when the firms being in the industrial estate. There are two outcomes variables, which are productivity level and export activity. The result found that being industrial estate improves firms' productivity, yet it fails to promote export activity.