Abstract
This chapter proposes a new approach to measure agglomeration economies in Japan. Specifically, this study employs the Solow residual to confirm whether agglomeration economies exist in both manufacturing and non-manufacturing industries. This study also shows that social overhead capital has a positive effect on agglomeration economies. Currently, such economies are robust only in large metropolitan areas; however, they are present throughout Japan because of the disproportionate allocation of social overhead capital within the country.
This chapter is based on Otsuka and Goto (2015) “Agglomeration economies in Japanese industries: the Solow residual approach,” published in The Annals of Regional Science (Vol. 54, No. 2, pp. 401–416).
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Notes
- 1.
Rosenthal and Strange (2004) conclude that labor productivity for a firm increases from 3 to 8% when the size of a city doubles.
- 2.
Glaeser et al. (2001) indicate that agglomeration economies exist for consumption, although most studies focus on explaining agglomeration economies in production. In addition, some previous studies demonstrate that agglomeration economies play an important role in improving the productive efficiency of local firms and industry (Beeson and Husted 1989; Mitra 1999, 2000; Driffield and Munday 2001; Tveteras and Battese 2006; Otsuka et al. 2010, 2014; Otsuka and Goto 2013; Otsuka 2017).
- 3.
The existence of agglomeration economies, as discussed in spatial economics, is explained through pecuniary external economies while considering the heterogeneity of intermediate goods. Therefore, this theoretical model is limited in that it only considers such technological external economies (see Fujita and Thisse 2002).
- 4.
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 that employs capital-using technology over the long term. However, the value fluctuates every year in the observed dataset. Hence, we assume that 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 this assumption, a proxy of the capital utilization rate can be measured using the residual error term (ε) in the regression ln(Y/K) = α + βT + ε, where T is a time trend and β is the time-invariant slope.
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Otsuka, A. (2017). A New Approach to Agglomeration Economies. In: A New Perspective on Agglomeration Economies in Japan. New Frontiers in Regional Science: Asian Perspectives, vol 20. Springer, Singapore. https://doi.org/10.1007/978-981-10-6490-6_4
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