Effect of Public Investment on the Regional Economies in Postwar Japan

Abstract

This paper examines the effect of public investment on the regional economies of postwar Japan. It evaluates the effects of efficiency-verses-equity-oriented allocation policies by estimating the aggregate regional production function and calculating the marginal productivity of public capital for each region, using panel data covering the 47 prefectures over the period from 1955 to 2000. The empirical results show that public capital investment has alternated between an allocation policy based on efficiency and one that is based on equity, and, in fact, such investment was used as a policy tool for adjusting income distribution and accelerating economic growth. Numerical simulations are used to analyze the trade-offs between economic efficiency and inter-prefectural equity. The results indicate that in the case of income-elastic labor mobility, an efficiency-oriented allocation policy leads to larger aggregate gross domestic product by promoting both growth and equity simultaneously.

Interregional productivity differentials: a shift-share decomposition analysis and its application to post-war Japan

“…As ECV 2 (π), which reflects the interprefectural sectoral productivity differentials, may come from the accumulated past investments within a given sector, its yearly variation indicates alternating policy shifts in the regional allocation of investment. This is consistent with the empirical result of Kataoka (2005) that the regional development policy in post-war Japan alternated between efficiency-oriented investment allocation, which implies greater investment in higher-productivity regions, and equity-oriented investment allocation, which implies greater investment in lower-productivity regions Second, ECV 2 (μ) (ECV 2 in the industry-mix component) revealed a downward trend and became a less significant contributor to the overall interprefectural inequality in productivity differentials throughout the period. In particular, it sharply decreased from 1.610 to 0.393 in the period 1955-1975.…”

“…Considering that the productivity differential component as an index of accumulated past investments within a given sector, its yearly variation indicates alternating policy shifts in the regional allocation of investment. This is consistent with Kataoka's (2005) empirical finding that the regional policies in post-war Japan alternated between efficiency-and equity-oriented investment allocations.…”

Trends in the regional allocation of public investment in the post-bubble Japanese economy

“…This share index is formulated by extending Kataoka (2005) approach, which is limited to analyzing allocation trends across two subnational regions and incorporates only the direct effects of region-level public capital. In contrast, the present study examines allocation trends where the nation consists of more than two subnational regions and reflects the interregional spillover effects of public capital.…”

Regional Analysis of Public Capital Expenditure: To Which Regions Is Public Capital Expenditure Channelled – to ‘Rich’ or to ‘Poor’ Ones?

“…HEALD, 1994;KATAOKA, 2005;MACEŠKOVÁ, 2007), mostly due to the severe data limitations in most countries. Therefore, the main aim of this article is an attempt to perform an analysis of the regional dimension of public capital expenditure in one of the new Member…”

“…SHORT, 1978;HEALD, 1994;HEALD and SHORT, 2002;MIDWINTER, 2004). In Japan, KATAOKA (2005) assessed the regional distribution of public investments between 47 prefectures in the post-war period. Kataoka noticed that periods of high national economic growth are positively correlated with the concentration of public investment into economically strong regions while in periods of low growth, a more balanced distribution of public capital expenditure has been observed.…”