Energy efficiency and agglomeration economies: the case of Japanese manufacturing industries

Along with various environmental concerns, Japan has an important policy issue arising from the development of its economies. The issue is how to simultaneously attain regional economic growth and energy efficiency. This study has examined impacts of agglomeration economies on energy efficiency of Japanese manufacturing industries. Using a prefecture-level panel data set from Energy Consumption Statistics, this study identifies the following three empirical findings. First, the productivity growth has improved energy efficiency, but not vice versa. Second, agglomeration economies, which are a driving force for productivity growth, have improved the energy efficiency of Japanese manufacturing industries. Finally, localization economies by agglomerating similar industries are effective in improving the energy efficiency in rural areas. The third finding is consistent with many previous studies, claiming that agglomeration economies based on localization occur for many medium-sized cities. The result implies that it is an important policy direction for Japan to formulate medium-sized cities in rural areas than large metropolitan cities in terms of improving the energy efficiency of manufacturing industries.