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How important is geographical agglomeration to factory efficiency in Japan’s manufacturing sector?

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Abstract

In this paper, the productivity spillovers from efficient factories have been investigated using factory-level data of Japan’s Census of Manufactures. The following three steps have been performed by estimating: first, efficiency of each factory using a nonparametric data envelopment analysis model for each industry, second, geographical distances to the most efficient factory in the prefecture and Japan overall are third, determinants of factories’ performance. Results suggest that clustering occurs in each industry and efficient factories concentrate in certain regions. The share of efficient firms in total firms is particularly high in the Chubu and Tohoku regions. For many industries closeness to the most efficient factories plays a statistically significant positive role in the efficiency of manufacturing factories in Japan. However, this is not the case in high-tech industries.

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Notes

  1. On the slowdown in TFP growth, see, e.g., Hayashi and Prescott (2002) and Fukao and Kwon (2006).

  2. For an example where this does occur, see Andersson and Gråsjö (2009), who state: “[...] a well-formed model should most likely not produce spatial autocorrelation at all. From this perspective spatial autocorrelation is not (pure) statistical nuisance but a sign [...] that a model lacks representation of an important economic phenomenon.”

  3. In order to check the robustness of the results, the distance to the most efficient factories within all Japan, without taking into account the prefecture boundaries, has been re-estimated and confirmed that both types of distances provide similar results (see Tables 3, 4).

  4. The model can be viewed as a spatial autoregressive model. To assure the consistency of the OLS estimators of the model, it is assumed that the spillover effect occurs only in the direction from the most efficient to the less-efficient factories and no spillover effect takes place among the rest of the factories.

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Acknowledgments

The authors acknowledge financial support from the Japanese Society for the Promotion of Science (JSPS) and Sasakawa Foundation in Nordic countries. We were able to gain access to the micro-data of the Census of Manufactures as part of the research project on the “Factory and Industry Level Analysis of Productivity” at the Research Institute of Economy, Trade and Industry (RIETI). We would like to acknowledge research assistance of Hangtian Xu and useful comments of the participants of the NISTEP workshop (Tokyo, Japan) and referees of this journal.

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Authors and Affiliations

  1. Hitotsubashi University, Kunitachi, Japan

    Kyoji Fukao

  2. Copenhagen Business School, INT, Porcelanshavn, 24b, 2000 , Frederiksberg, Denmark

    Victoria Kravtsova

  3. Tohoku University, Sendai, Japan

    Kentaro Nakajima

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  1. Kyoji Fukao
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  2. Victoria Kravtsova
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Correspondence to Victoria Kravtsova.

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Fukao, K., Kravtsova, V. & Nakajima, K. How important is geographical agglomeration to factory efficiency in Japan’s manufacturing sector?. Ann Reg Sci 52, 659–696 (2014). https://doi.org/10.1007/s00168-014-0601-9

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