2016 Volume 46 Issue 2 Pages 213-227
An interregional differential of economic activity has been a public policy issue in Japan since the 1960s. The government has designed, legislated and implemented various policies to cope with this issue under various titles.
Interregional differentials of economic activity can be measured by various indices such as the size, growth rate or productivity of a regional economy. Also, the geographic coverage of “region” can vary. In this study, I used data from the Manufacturing Census to conduct an analysis of labor productivity differentials of the manufacturing industries of 47 prefectures in Japan using two different methods; production function analysis and shift-share analysis.
The production function analysis, though under the assumption of the Cobb-Douglas production function, showed different levels of total factor productivity, TFP in each mid-level subcategory of the manufacturing industry for each prefecture as the departure ratio from the national value. However, it should be noted that TFP was calculated as the Solow residual in the production function with a constant capital/labor substitution ratio.
The shift-share analysis divided γi, the departure ratio of labor productivity of the manufacturing total in prefecture i, from the national value into three components; μi: industry-mix component, πi: productivity-differential component, and their cross terms αi: allocative component for each of the mid-level sub-categories in the manufacturing industry. To calculate γi these three components were summed over all mid-level subcategories of the manufacturing industry for each prefecture. From this series, ECV 2: the employment-weighted coefficient of variation, sum of the squared coefficient for the variation in labor productivity weighted by the manufacturing employees’ share of each prefecture in the national total, was calculated for each calendar year. Overall, the productivity-differential component, πi, showed a higher weight than the industry-structure component, μi, in the labor productivity differentials of the manufacturing industries among prefectures. This means that the two approaches show consistent outcomes.
JEL Classifications: C81, L60, R00, R32
