The Dynamics of Clove Cigarette Industrial Clusters In Indonesia

Mudrajad Kuncoro

Professor in Economics,  Faculty of Economics and Business,  Gadjah Mada University, Yogyakarta, Indonesia. 

Email: profmudrajadk@gmail.com : URL: http://www.mudrajad.com

Accepted 23 July 2014

Abstract

This paper attempts to illuminate the dynamics of Indonesia’s clove cigarette industry using Structure-Conduct-Performance (SCP) paradigm and industrial cluster approach. We employed concentration ratios (concentration ratio and Herfindahl-Hirschman Index) and performance ratios in SCP analysis. To identify industrial clusters, we used Geographic Information System (GIS) and specialization index. The structure of clove cigarette industry suggested that an oligopoly with high concentration has been found, albeit declined slightly over the period 1996-2003. As far as geographic concentration is concerned, we found that this industry has clustered overwhelmingly in and around four districts, namely Kudus, Kediri, Surabaya, and Malang. Our study confirms that the spatial pattern of industrial development in Indonesia shows an uneven distribution of manufacturing industry geographically. Cigarette sales were highly inelastic, even during the economic turmoil over 1999-2003, and had remained strong leading to a remarkable performance in terms of value added, employment, and export.

Keywords: clove cigarette industry, oligopoly, concentration ratio, cluster