Agglomeration and Land Rents: Evidence from the Prefectures

Abstract

We use Japanese prefectural wage and land rent data to estimate the magnitude of agglomeration effects in manufacturing and financial services. We also examine the geographical range of agglomeration effects by estimating the extent to which they diminish with distance, using a specification that encompasses the polar cases of purely local agglomeration economies, on the one hand, and national increasing returns, on the other. We find that the extent of agglomeration economies in both industries is significant, but that their effect decays much faster with distance in financial services than in manufacturing. That is, the geographical reach of spillovers in financial services appears to be much lower than in manufacturing.