How Important Is Geographical Agglomeration to Factory Efficiency in Japan's Manufacturing Sector?

In this paper, we investigate the productivity spillovers from efficient factories by using factory-level data of Japan’s Census of Manufactures. First, the efficiency of each factory is estimated using a non-parametric Data Envelopment Analysis (DEA) model for each industry. Second, the geographical distances to the most efficient factory in the prefecture and Japan overall are estimated. Third, the determinants of factories ’ performance are identified and estimated. We find that clustering occurs in each industry and efficient factories concentrate in certain regions. The percentage of efficient firms in total firms is particularly high in the Chubu and Tohoku regions. The estimation results also suggest that closeness to the most efficient factories plays a statistically significant positive role in the efficiency of manufacturing factories in Japan in most industries. However, this is not the case in high-tech industries. Key words: regional policy, spatial models, productivity and efficienc