Measuring Agglomeration Economies in Japan’s Manufacturing Industry: Agglomeration and Coagglomeration Indices Approach

This chapter investigates the agglomeration and coagglomeration effects on production in Japan’s manufacturing industries (lifestyle-related, basic materials, and processing and assembly-type industries). We use the agglomeration and coagglomeration indices based on Ellison and Glaeser (J Polit Econ 105(5):898–927, 1997) instead of the localization and urbanization economies variables as a new approach and examine the existence and extent of agglomeration economies in Japanese manufacturing industries using plant-level four-digit SIC data and agglomeration and coagglomeration indices for 1985, 1990, 1995, and 2000. Using a flexible translog production function and cost-share equation, as suggested by Christensen et al. (Rev Econ Stat 55:29–45, 1973) and Kim (Rev Econ Stat 74:546–551, 1992), we find that positive and weak agglomeration economies in Japan’s manufacturing industry exist without the homotheticity restriction.