Regional determinants of total factor productivity in Japan: stochastic frontier analysis

Abstract

As Japan’s birthrate declines and its society ages, governmental policies need to improve the productivity of regional economies in order to sustain regional growth. This study examines social overhead capital and population agglomeration as drivers of total factor productivity (TFP) growth in Japan. The use of stochastic frontier analysis demonstrates that social overhead capital contributes to TFP growth and, especially, influences productive efficiency. Furthermore, the findings reveal that population agglomeration underpins TFP growth in regional economies. Empirical results also indicate that productive efficiency is high in regions where manufacturing is concentrated and that productive efficiency improves when internationally competitive manufacturers concentrate in regional economies. This study endorses the development of social overhead capital to spur Japan’s regional TFP growth. As such, it indicates that providing social infrastructure and enhancing regional productivity are important strategies for the government to consider in its efforts to achieve sustainable regional growth.