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Communities of Commerce: The Legacy of Chinese Immigration on Java, Indonesia

2024
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Paper Description

Ethnic minorities have played an out-sized role in both historical and contemporary economic development. This paper studies one of the most prominent but understudied cases, in the world's most populous island: the economic legacy of ethnic Chinese immigration on Java, Indonesia in the early 21st century. Using an instrumental variables strategy, we exploit plausibly arbitrary 15th-century ethnic Chinese landing sites on the Northern coast of Java that determined initial Chinese presence but have not been accessible by sea since the mid 17th-century due to silting. We find a strong positive effect on local economic development. In districts with higher ethnic Chinese shares, villages are wealthier as measured by consumption, population density and nighttime light intensity. We trace this to the persistently important economic role of Chinese in trade and commerce. Districts with a historically higher ethnic Chinese share have, today, a higher (lower) employment share in services (agriculture), firms have higher sales and these positive effects can be traced to a larger financial industry. Furthermore, we find that subsectors more closely linked to traditional ethnic Chinese sectors continue to employ a larger share of individuals. Our findings suggest that the ethnic Chinese minority in Indonesia, despite their small size, have and continue to play an out-sized role in Indonesia's modern-day development with spillovers that benefit the entire local population.

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