Spatial Concentration, Market Potential, and Agglomeration Effect in Japan’s Manufacturing Industry

The purpose of this chapter was to offer an empirical investigation of spatial concentration, the spatial correlation between wages and market potential, and agglomeration externalities for production in Japan’s manufacturing industry across prefectures for 1980–2000. In the first part of this chapter, we measure the spatial concentration and agglomeration indices using Ellison and Glaeser (J Polit Econ 105(5):898–927, 1997), Maurel and Sedillot (Reg Sci Urban Econ 29:575–604, 1999), and Devereux et al. (Reg Sci Urban Econ 34:533–564, 2004) in Japan’s manufacturing industries for 1980–2000. Then, we found that the most agglomerated industries are traditional industries, industries with natural advantages, and some high technology industries, and the patterns of the most and least agglomerated industries reveal similar in the USA and UK. In the second part of this chapter, from the perspective of the demand side of the spatial economy, we examine the spatial correlation between wages and market potential to see whether regional demand linkages contribute to spatial agglomeration, that is, a market-potential effect. Then, we found the existence of a positive spatial correlation between wages and market potential, that is, a market-potential effect in some industries with high agglomeration over this period. In the last part of this chapter, from the perspective of the supply side of the spatial economy, we examine that agglomeration externalities on production exist in Japan’s manufacturing industry for 1985–2000, using a flexible translog production function and data on Ellison–Glaeser index. In other words, we scrutinize the existence of agglomeration effect in Japan’s manufacturing industry for this period. Then, we found the existence of a positive weak agglomeration effect for production and scale economies in Japan’s manufacturing industry over this period.