Impacts of Industrial Hollowing and New Industrial Clusters on Regional Economies Under Declining Population in Japan

In this chapter, we will measure the impacts of the industrial hollowing between 2005 through 2015 (without declining population society) and the declining population society on the Japanese four regional economies and clarify the effects of new industrial clusters with innovation to revitalize Japan’s economy in a declining population society (Porter, On competition, Harvard Business School Press, Cambridge, MA, 1998, Econ Dev Q 14(1):15–34, 2000), using a four-region computable general equilibrium (CGE) model. The following four scenarios are analyzed through the simulations of a four-region CGE model. First, if the industrial hollowing of Japanese manufacturing occurs between 2005 through 2015, Japan’s real GDP will decline by 7.6% relative to base year 2005. Particularly, the real GRP in Southern Kanto region will decline drastically by 9.8%, despite the fact that real GRPs in regions outside the Kanto region will decline by only 6.6%. Second, unless the Japanese government will conduct some policies in a declining population society, Japan’s economic growth will decline to negative growth of 3.5%. However, economic growth could reach a level of approximately 0.2–0.3% relative to base year 2005 if some policies by Japanese government are taken to increase productivity and raise production subsidies to create the production volume required to meet the additional demand generated by the current Abe administration’s “Japan Revitalization Strategy.” Third, the construction of new industrial clusters will be effective in preventing the exacerbation of interregional economic welfare disparities in a declining population society. The simulations conducted in this analysis suggest that construction of new industrial clusters with coagglomeration and innovation will revitalize regional economies and will lead to narrower interregional economic disparities. Fourth, in order to recover from the influence of industrial hollowing and regional disparities in a declining population society, three policy simulations together in formation of new industrial clusters were carried out in three scenarios for a subsidy policy, a commodity-grade products policy, and a productivity improvement policy with industrial agglomeration and R&D investment of FDI back flow. When evaluating the results, we found that a contribution degree of a productivity innovation policy was the biggest among three policies.