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Economies of Density and Productivity in Service Industries: An Analysis of Personal-Service Industries Based on Establishment-Level Data

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  • MORIKAWA Masayuki

Abstract

The purpose of this paper is to investigate the basic facts of service industry productivity, such as economies of scale, economies of scope, and economies of density in Japan. Specifically, by using establishment-level data on personal-service industries in which the simultaneity of production and consumption is especially prominent, the paper estimates production functions both for value-added and physical output measures. Key findings from the analysis are as follows: 1. In almost all the examined service industries, economies of scale in terms of establishment size and firm size, and economies of scope are found. 2. In almost all the examined service industries, significant economies of population density are observed, with productivity increases of 10%-20% when municipality population density doubles. The sizes of these coefficients are substantially larger than those observed in manufacturing industries for which sales destinations are far less restricted geographically; demonstrating demand density's importance to the productivity of service industries. 3. The above findings are confirmed by estimation using measures of physical output instead of the amount of value added. These findings suggest the possibility that consolidation and expansion at an establishment level, as well as multi-store and chain store operations at a firm level, may help improve the productivity of personal-service industries. Formation of population-dense areas is also suggested, as this would have a positive effect on productivity.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 08023.

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Length: 24 pages
Date of creation: Jul 2008
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Handle: RePEc:eti:dpaper:08023

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  1. Rosenthal, Stuart S. & Strange, William C., 2004. "Evidence on the nature and sources of agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 49, pages 2119-2171 Elsevier.
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  15. Robert Dekle, 2002. "Industrial Concentration And Regional Growth: Evidence From The Prefectures," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 310-315, May.
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Citations

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Cited by:
  1. MORIKAWA Masayuki, 2011. "Urban Density, Human Capital, and Productivity: An empirical analysis using wage data," Discussion papers 11060, Research Institute of Economy, Trade and Industry (RIETI).
  2. Hashiguchi, Yoshihiro & Tanaka, Kiyoyasu, 2013. "Agglomeration and firm-level productivity : a Bayesian spatial approach," IDE Discussion Papers 403, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  3. MORIKAWA Masayuki, 2008. "Demand Fluctuations and Productivity of Service Industries," Discussion papers 08030, Research Institute of Economy, Trade and Industry (RIETI).
  4. Morikawa, Masayuki, 2012. "Population density and efficiency in energy consumption: An empirical analysis of service establishments," Energy Economics, Elsevier, vol. 34(5), pages 1617-1622.
  5. MORIKAWA Masayuki, 2010. "Economies of Scale and Hospital Productivity: An empirical analysis of medical area level panel data," Discussion papers 10050, Research Institute of Economy, Trade and Industry (RIETI).
  6. Tanaka, Kiyoyasu & Hashiguchi, Yoshihiro, 2012. "Spatial spillovers from FDI agglomeration : evidence from the Yangtze River Delta in China," IDE Discussion Papers 354, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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