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Published in: The Annals of Regional Science 2/2016

28-01-2016 | Original Paper

Total factor productivity and the convergence of disparities in Japanese regions

Authors: Akihiro Otsuka, Mika Goto

Published in: The Annals of Regional Science | Issue 2/2016

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Abstract

Japan’s regional economies face global competition amidst the challenges of a declining and aging population. Given such economic conditions, Japan’s total factor productivity (TFP) requires boosting to achieve competitiveness in regional economies. Although labor productivity is a popular measure for the analysis of productivity and has been a focus of prior studies, TFP’s comprehensiveness is a preferable measure. This study measures TFP using regional data from Japan and tests if the convergence of regional TFP disparities can be detected since 1980. The results show that TFP has continually increased and converged to reduce regional disparities over the study period. We perform statistical analysis of the regional convergence in TFP using a stochastic convergence model and find that TFP converged at each region’s stationary level, not at the nationwide unique level. These results provide policy implications for Japan’s regional economies.

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Footnotes
1
The same approach (benchmark year method) has been adopted in the estimation of capital stock by the Cabinet Office (see Private Sector Capital Stock Statistics).
 
2
We expect 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 in the long term. However, the value fluctuates every year in an observed data set. 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 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 \(\left( {\frac{Y}{K}} \right) \).
 
3
From the estimation method of the capacity utilization rate, we expect that the effect of variation in capital stock caused by the national economic cycle will be removed to a certain extent. However, the removal of variation will not extend to economic activities at the regional level.
 
4
In general, TFP variation is calculated using individual- and company-level data. In addition to the within, between, and covariance effects, the entry and exit effects are considered (Fukao and Kwon 2006).
 
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Metadata
Title
Total factor productivity and the convergence of disparities in Japanese regions
Authors
Akihiro Otsuka
Mika Goto
Publication date
28-01-2016
Publisher
Springer Berlin Heidelberg
Published in
The Annals of Regional Science / Issue 2/2016
Print ISSN: 0570-1864
Electronic ISSN: 1432-0592
DOI
https://doi.org/10.1007/s00168-016-0745-x

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