Estimates of the Effects after the Abolition of the Factory Location Act: Empirical Analysis of Total Factor Productivity

Abstract

　Since populations and industries were concentrated in Tokyo, Osaka and other metropolitan areas in the 1980s, regional policies of Japan until around the 1990s primarily focused on the decentralization of various functions from large cities to rural areas.　Especially, the Japanese government prohibited the location of industrial plants over 500 m² in Tokyo, 1,000 m² in Osaka and neighboring areas in the laws from 1959～2002 and 1964～2002.　However, Nagoya and other areas were not regulated.This regulation is criticized because it lowered Total Factor Productivity （TFP） in the overall Japanese economy.

　Empirical analysis of the regional economies has been based on prefectural statistics.　However, regulations that prohibited the building of industrial plants targeted the cities.　Therefore, the author collected TFP data from the 1980s for the cities and wards of Japan and compared the effects of regulated and unregulated areas by applying the Treatment Effect Model.

　This paper examines the repeal of the law in 2002 and shows that the increase of TFP in these restricted areas was significantly different from other areas of Japan after the abolition of the law in 2002.

　The results imply that the deregulation in the metropolitan areas was favorable in terms of enhancing productivity in those areas, which may have led to revitalize of the entire economy.

　This regulation has redressed regional disparities and promoted a balanced nation-wide development of Japan.However, it may prevent the increase of TFP in the whole country.　Policymakers should take heed to these side-effects when they plan regulations regarding factory location.

JEL Classifications:C21, D24, R11, R12, R15, R52