Regional convergence of total factor productivity in Japanese industries: evidence from the twenty-first century industry data

Abstract

Innovation and technological progress are crucial to the sustainability of regional economies. Assessing the role of the spatial dimension in the innovation process and evaluating the convergence of regional disparities in technological levels encompasses a vital research endeavor. The significance of this research effort lies in the fact that the convergence of economic disparities can be accelerated or impeded depending on the innovation process, that is, whether regional disparities in technological levels decrease or increase over time. This study provides new insights into regional disparities of total factor productivity (TFP) in Japan using a new method, the stochastic convergence model. The stochastic convergence model allows determination of the long-term stationarity in the convergence of disparities, which has been challenging in conventional analyses. In this study, we first evaluated the technological level of regional industries by measuring industry-specific TFP. Then, we verified the convergence of disparities in TFP among regions using a stochastic convergence model. The analysis results showed that TFP is rising with narrowing of regional disparities, particularly in the manufacturing sector. Furthermore, TFP converged to steady-state levels in each region, revealing the importance of the regional production environment in innovation. The results of this study provide important implications for developing strategies to enhance the sustainability of regional economies.