Client: Economic Research Institute for ASEAN and East Asia: ERIA

The key to our analysis is the measure of agglomeration in services and manufacturing sector and how amenities shape the agglomeration. In our study, we estimate the Ellison-Glaeser (hereafter EGI) for our agglomeration index. EGI provides several advantages: (1) it provides an unbiased estimate of agglomerative forces independent of the source of such forces; (2) it is easily interpreted, simply as the probability that a firm choosing its location follows the prior firm rather than locating randomly; (3) It is relatively easy to compute, as it depends on spatial-unit level information about the plant distribution of industry; and, (4) the index is also comparable across industries with varying firm in size-distributions and controls for overall agglomeration trends.