Measuring Economic Localization: Evidence from Japanese firm-level data

This paper examines the extent of localization in Japan's manufacturing sector using a unique firm-level dataset on the geographic location of firms. Following the point-pattern approach proposed by Duranton and Overman (2005), we find the following. First, approximately half of Japan's manufacturing industries can be classified as localized and the number of localized industries is largest for a distance of 40 km or less. Second, several industries in the textile mill products sector are among the most localized, which is similar to findings for the UK. This suggests that there exist common factors across countries that determine the concentration of industrial activities. Third, the distribution of distances between entrant (exiting) firms and remaining firms is, in most industries, not significantly different from a random distribution. The results by Durantan and Overman (2008) for the UK and our results for Japan suggest that most industries neither become more localized nor more dispersed over time.