Abstract
This paper proposes a new approach to measuring agglomeration economies in Japan. Under the proposed approach, we used the Solow residual to measure agglomeration economies and confirmed that agglomeration economies exist in both manufacturing and non-manufacturing industries. Furthermore, this paper shows that social overhead capital has a positive effect on agglomeration economies. Currently, agglomeration economies are robust only in metropolitan areas; however, they are present throughout Japan because of the disproportionate allocation of social overhead capital within the nation.
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Notes
It is expected that variations in the logarithm of the inverse of the capital coefficient, \(\ln \left( {\frac{Y}{K}} \right) \), have a constant slope over time under a production system employing capital-using technology over the long term. However, the value fluctuates every year in an observed data set. Hence, we assume the fluctuations in \(\ln \left( {\frac{Y}{K}} \right) \) can be attributed to a change in capital utilization, as well as a time trend. Based on that assumption, a proxy of the capital utilization rate can be measured with a residual error term (\(\varepsilon )\) in the regression \(\ln (Y/K)=\alpha +\beta T+\varepsilon \), where \(T\) is a time trend and \(\beta \) is a time-invariant slope of \(\ln \left( {\frac{Y}{K}} \right) \).
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This work was supported by a Japan Society for the Promotion of Science (JSPS) Grant-in-Aid for Scientific Research (KAKENHI) 24530287.
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Otsuka, A., Goto, M. Agglomeration economies in Japanese industries: the Solow residual approach. Ann Reg Sci 54, 401–416 (2015). https://doi.org/10.1007/s00168-015-0659-z
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DOI: https://doi.org/10.1007/s00168-015-0659-z