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Creating agglomeration economies in Nusantara
The proximity of businesses and institutions allows the people living in the city to access a variety of employment opportunities, goods and services with ease and convenience.
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A closer look: President Joko “Jokowi” Widodo inspects the progress of a toll road that will lead to the new capital city of Nusantara in East Kalimantan on Feb. 22, 2023. (Presidential Secretariat's Press Bureau/Laily Rachev)
T
he plan and development process of Indonesia’s new capital city, Nusantara, in East Kalimantan, has set off heated public debates among policymakers and public policy analysts, but Joko “Jokowi” Widodo’s administration has stubbornly proceeded with its development, a city that is envisioned to be a “forest-smart city.”
The progress of the new capital city development has reached 12-15 percent of total basic infrastructure development targeted to be fully completed in 2024. Given this progress, it is now important to think about how the ongoing development of the new capital city can successfully achieve its envisioned goals.
Creating agglomeration economies, referring to the concentration of economic activities, industries and population in a specific geographic location, is an important factor for the development of Indonesia’s new capital city.
The success of the new capital city is heavily determined by the government’s well-planned policies and strategies that encourage the creation of agglomeration economies during the early stages of its development.
Agglomeration economies can bring many benefits that arise from the proximity and exchange of ideas and information. It can encourage economic growth, improve the residents’ quality of life and enhance the overall success of the new capital city.
The large concentration of businesses and workers in the city can lead to the development of specialized suppliers, services and infrastructures. This will generate economies of scale that leads to reduced costs, increased efficiency, improved competitiveness and thereby boosting the city’s economic growth.
The clustering of economic activities can also help the establishment of a dynamic and diverse economy in the new capital city, as a mix of different types and sizes of businesses are attracted to this area and the new industries emerge and grow. This diversity can foster the creation of a more resilient and stable economy as the existence of a variety of businesses can moderate the adverse effects of economic shocks.
