Spatial Concentration of the Informal Small and Cottage Industry in Indonesia

This paper discusses the spatial concentration of the small and cottage industry without legal entity or informal industry in Indonesia in 1998–2005. The study found provinces in Java consistently show a strong domination in total employment of the informal small and cottage industries. By employing several measures on the employment data, this study found an increase in spatial concentration of the informal small and cottage industry during this period. This paper argues that there are two important explanations regarding the increase in spatial concentration. Both explanations are the impact of economic performance and the impact of high cost of formality. It implies that to decrease spatial concentration there is a need to improve the equality of economic growth across provinces together with an effort to reduce the cost of formality in doing business.