NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Market Size, Linkages, and Productivity: A Study of Japanese Regions

Donald R. Davis, David E. Weinstein

NBER Working Paper No. 8518
Issued in October 2001
NBER Program(s):   EFG   ITI   PR

One account of spatial concentration focuses on productivity advantages arising from market size. We investigate this for forty regions of Japan. Our results identify important effects of a region's own size, as well as cost linkages between producers and suppliers of inputs. Productivity links to a more general form of 'market potential' or Marshall-Arrow-Romer externalities do not appear to be robust in our data. Landlocked status does not matter for productivity of regions in Japan. The effects we identify are economically quite important, accounting for a substantial portion of cross-regional productivity differences. A simple counterfactual shows that if economic activity were spread evenly over the forty regions of Japan, aggregate output would fall by nearly twenty percent.

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Published: Kanbur, Ravi and Anthony Venables (eds.) Spatial Inequality and Development. Oxford: Oxford U. Pr., 2005.

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