Agglomeration and Institutional Effects on Dynamics in Regional Disparities: Experience from Poland and Japan

Poland and Japan, there were quite different characteristics in terms of economic system. Since drastic change of economic system in Poland in 1989, increase of economic disparities in terms of unemployment rates across regions was remarkable, probably due to the spatially deviated foreign direct investment. However, in recent years we can also observe a tendency of divergence in regional economic disparities inNUTS 2 level. Turning to Japanese regions, inter-regional income disparities is expanding since 2001 while in 1990s Japanese economies were strongly suffered from the Bubble burst. Japanese central government is now thinking about the reformulation of regional (local) governments, called prefectures. At this point, it is worthwhile to examine dynamics in regional disparities of two countries by comparing quantitatively regional institutional systems as well as economic situations.With regard to convergence divergence model in the sense of Barro and Sala-i-Martin, there are few studies which incorporate agglomeration effects. We try to explain the dynamics of inter-regional disparities by institutional factors, which are different between two countries, as well as economic factors. The estimation model starts from defining regional production function, and we propose a new estimation model and implement estimation with regional time-series and cross-section data of Poland and Japan. Finally, we would like to refer to some policy implications for desirable regional economic system.