Inter-regional Networks and Regional Disparities

Abstract

This chapter analyzes the relationship between inter-regional network economies and regional disparities using stochastic frontier analysis. The current dynamics in Japan’s regional economic systems reveal a monocentric concentration in the Greater Tokyo Area. When the lock-in effect of agglomeration occurs, economic disparities between large metropolitan areas and local areas should expand. However, in Japan, regional disparities have not increased. Instead, economic performance in local areas has improved, and economic disparities between large metropolitan areas and local areas are narrowing. Therefore, Japan’s situation requires an explanation that goes beyond conventional agglomeration theory. This chapter shows that inter-regional networks enhance the effectiveness of borrowed size and repair the lost links between regional economic systems and agglomeration theory. The chapter reveals that the borrowed size effect has significantly improved production efficiency in local areas in Japan. The impact of the borrowed size effect is greater than the agglomeration benefit derived from the local size. The results also show that the development of high-quality transportation networks has enabled local areas to catch up to large metropolitan areas and reduce regional disparities. This suggests that the establishment of high-quality inter-regional networks is a significant policy measure to help reduce regional disparities in Japan’s economy.