Spatially Uneven Pace of Deindustrialization Within a Country

The declining share of manufacturing value-added, often referred to as "deindustrialization," is fast becoming a major concern for policymakers and academic researchers, especially in high-income countries. When compared with country-level analysis, however, regional-level analyses of deindustrialization within a country are limited. This paper empirically examines how and why the patterns of deindustrialization are uneven across regions within a country. The analysis builds upon the neoclassical trade model and uses regional-level data in Japan where both detailed output and input data are available at the regional and industry levels for both manufacturing and nonmanufacturing industries over the last four decades. One of the major findings is that the large variation in deindustrialization within a country is attributable to differences in productivity and price changes across regions. In contrast, the effect of the slowdown in capital accumulation, partly from the expansion of foreign direct investment or offshoring, commonly appears not in specific regions but across regions. The effect of spatial interdependence is also not only statistically significant but also nonnegligible in terms of its magnitude.