An Analysis of the Saving and Investment Balance in Hokkaido from the Perspective of Long-term Data

Abstract

This paper reviews the saving-investment (S-I) balance in the Hokkaido economy by analyzing hitherto unexamined long-term, time-series data from prefectural accounts in Hokkaido. The S-I balance in Hokkaido consists of the private and government sectors and the balance of regional payments. However, the area economy depends especially on fiscal transfers from the government and on the behavior of the gap between saving and investment that are included in transfers of the central government. Therefore, it is difficult to use the S-I balance before adjusting for three aspects: fiscal, capital, and income transfers. Thus, the transfers are considered to be composed of the balance of regional payments, and the expression for the S-I balance is developed after transfers are adjusted by sectors so that the Hokkaido economy can be examined from the perspective of its money flow. The results are as follows: (1) The fiscal deficit is more than the net export deficit. As a result, the S-I balance in Hokkaido, after adjusting the transfers (or the claims outside Hokkaido), is negative. (2) Private sector savings are excessive, and government sector investments are excessive. Furthermore, the value of the former is less than that of the latter. (3) Excess investment from the government sector has declined over time. Declining net capital transfer and increasing net other current transfers cause the excess investment situation. Net other current transfers are transformed from development-incentive funds to social security service-incentive funds. These results raise questions regarding the classic economic view that savings and investments will always balance over time via market mechanisms. A variety of measures should be taken to address the imbalance and the resulting slow economic growth in Hokkaido, including innovative investment, export-oriented stimulation, enhancement of financial intermediary functions, and compromised financing between the government and the private sectors, such as private finance initiatives.