Regional inflation, spatial locations and the Balassa-Samuelson effect: Evidence from Japan

Abstract

We empirically analyse regional inflation using data from Japan where there is no regulation to impede the free movement of labour, capital, goods and services across regions. In particular, our analysis will focus on the geographical location of regions and the productivity (known as the Balassa-Samuelson (BS)) effect as explanations for the dynamics of regional inflation. Based on a spatial model which is consistent with the theoretical specification of the BS, we have confirmed that, while it is a relatively small country in terms of land area, both spatial location and productivity are important determinants of regional inflation.

Spatiotemporal analysis of regional inflation in an emerging country: The case of Indonesia

“…First, they show the importance of incorporating formal spatial analyses in studying regional inflation for Indonesia. This premise broadly supports the implications from previous studies in other countries discussed in Section 2.1 (Marques et al, 2014; Nagayasu, 2017; Yesilyurt & Elhorst, 2014). To our knowledge, this type of space–time exploration has not been implemented previously to gain better understanding about the characteristics of regional inflation dynamics, with a focus on its components.…”

“…Yesilyurt and Elhorst (2014) find that spatial spillovers of inflation expectations significantly shape regional inflation dynamics across 67 provinces in Turkey. Differently, Nagayasu (2017) uses the Balassa–Samuelson framework to investigate Japanese regional inflation and shows that the inflation in a prefecture is more influenced by inflation in its neighboring regions than the productivity level of the region itself, consistent with the theory.…”

“…Although the Balassa–Samuelson hypothesis has been proposed mainly as a standard explanation for price or inflation heterogeneity, the theory also implies the importance of other regions' inflation rates in affecting inflation in a particular location. To show this, we follow Nagayasu (2017) by simply assuming two parties that are involved in trade with one another: a focal region and all other regions. In the context of the analysis within a monetary union, given that the absence of trade restrictions and transactions is settled using a common currency, the following relationship holds under purchasing power parity (PPP): where and indicate price of tradable goods in focal region and in all other regions, respectively.…”

Inflation and Spatial Spillovers in a Large Archipelago: Evidence from Indonesia*

“…This particular finding supports the evidence of spatiotemporal dependence in Indonesian regional inflation documented by Aginta (2022). A similar finding has been also reported by Yesilyurt and Elhorst (2014) and Nagayasu (2017) for provinces in Turkey and Japan, respectively. Second, the effect of a unit change in the past inflation in neighbouring regions on current inflation in a focal region (W lagged headline and core inflation) is statistically significant and of the expected sign.…”

Spatial Dependence, Social Networks, and Economic Structures in Japanese Regional Labor Migration

“…At this stage, our approach departs from previous analyses that usually rely on a single spatial weight matrix based on geographical distance, as we introduce several definitions of regional dependence in the data. In particular, to our knowledge, previous studies on Japanese inter-regional migration have not considered regional heterogeneity in economic structures (Japanese regional heterogeneity is well documented in the economics literature [36][37][38] but more rarely discussed in the migration literature). Investigating this heterogeneity is important since labor mobility depends on the nature of employment opportunities in the destinations and particularly on the industry-specific skills they require.…”