Visualizing the economic flows of local economy in Japan

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1 Visualizing the economic flows of local economy in Japan Yoshifumi Ikejima July 22, 2016

2 Introduction Analysis of Local Economic Circulation Boosting economic circulations is expected to revitalize local economies under the downward trend in Japan Hard to elucidate economic circulations due to the lack of appropriate data and methodologies To look for better approaches to visualize economic circular flows with GIS Hard to describe economic circulations in local level Should be focused on one aspects of a local economy 1

3 First step to approach economic circular flows To analyze monetary flows of public expenditures to verify economic linkage (leakage) that one local municipality has Financial flows of payments and profits across geographic boundaries Focuses on orders from local government to the direction to expenditure Expenditure within local Local government The metropolitan area Expenditure to outside 2

4 Outline Introduction: purpose of this study Local Economies in Japan and excess concentration on Tokyo Data and Methodology Results and Conclusions 3

Background: Local economies in Japan Downward trend The shrinking economy by depopulation The collapse of local industries by the structural change Negative spiral Less job opportunities in local

5 Background: Local economies in Japan Downward trend The shrinking economy by depopulation The collapse of local industries by the structural change Negative spiral Less job opportunities in local areas Population flowed out to the metropolitan area Depopulation accelerated furthermore Depopulation in the countryside co-existing overpopulation in the metropolitan area Excess concentration of population and industry in the Tokyo Metropolitan area Tokyo is a political economic center Large population and corporations have accumulated 4

6 図都道府県別にみた地域経済の不均等発展 (2001 年基準 ) 資料 : 内閣府県民経済計算年報 2001 年度版及び国税庁法人税統計 2001 年度版による 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 北海道青森県岩手県宮城県秋田県山形県福島県茨城県栃木県群馬県埼玉県千葉県東京都神奈川県新潟県富山県石川県福井県山梨県長野県岐阜県静岡県愛知県三重県滋賀県京都府大阪府兵庫県奈良県和歌山県鳥取県島根県岡山県広島県山口県徳島県香川県愛媛県高知県福岡県佐賀県長崎県熊本県大分県宮崎県鹿児島県沖縄県総生産所得金額構成比 ( 全国一〇〇 ) 法人所得金額第 3 次産業第 2 次産業第 1 次産業 Amount of Corporate Income GDP of Tertiary Industry GDP of Secondary Industry GDP of Primary Industry Excess Concentration in Tokyo (2000) Tokyo (source) Okada et al. (2010) 5 Background: Uneven development in Japan

Tokyo Accumulation of highly specialized companies Attractive

services, business size, and technical standard, and so on.

every establishments are supposed to flow back to the HQs in

Corporations in Tokyo had 373 new factories, which had more than

7 Why does value gather into Tokyo? Existence of a large variety of professional corporations in Tokyo Accumulation of highly specialized companies Attractive companies in Tokyo in the light of quality of goods and services, business size, and technical standard, and so on. An accounting rule for businesses Headquarters Profits earned in every establishments are supposed to flow back to the HQs in Tokyo. Corporations in Tokyo had 373 new factories, which had more than 1,000 m 2 of site acquisition although no factory was located in Tokyo. The profit earned in those factories would flow back to Tokyo (METI 2014). Business establishments 6

Target Area---Tsuru City in Yamanashi, Japan (1)Small city at a fringe of Tokyo metropolitan area (far from about 90km/56mile) (2)Surrounded by forest and nearby Mt.

8 Target Area---Tsuru City in Yamanashi, Japan (1)Small city at a fringe of Tokyo metropolitan area (far from about 90km/56mile) (2)Surrounded by forest and nearby Mt. Fuji (3)Population with about 33,000 (4)Traditional Industry: Production of silk and weaving Current industry: Metal processing industries and approximately 1,800 establishments of other industries (5)Fiscal size of city: 12 billion yen(2013) 7

9 Outline Introduction: purpose of this study Local Economies in Japan and excess concentration on Tokyo Data and Methodology Results and Conclusions 8

10 Data 1 Transaction data in a fiscal year from the city government Business partners name, address, details of transaction, and amount of money by a transaction In 2013, Tsuru city carried out 16,902 transactions Total transaction amount was approximately 3.1 billion JPY, one third of the government budget. *The rest of the budget was outside the scope of this paper. 2 Corporations data from a credit survey company in Japan Address information of Headquarters and Industry classification City government transacted with some different branch offices or subsidiaries of the same parent company. 9

Supplementary explanation in the transaction data Non-mandatory expenditures like cost of equipment, maintenance fee, and investment expenditure by classification of budget.

11 Supplementary explanation in the transaction data Non-mandatory expenditures like cost of equipment, maintenance fee, and investment expenditure by classification of budget. Mandatory expenditures like labor cost, social assistance expenditure, and public debt payment. A municipality can change(reduce) these expenditures A municipality can select business partners in the nonmandatory expenditures. Tsuru prioritized local businesses to develop local economy except for emergencies and highly professional matters. 10

12 Methodology to trace destination of money 1. The transaction data by each transaction was aggregated by a corporate name 16,902 transactions were aggregated into 1,258 corporations. 2. Of 1,258 corporations, 689 corporations are available to connect the data from the credit survey company This data can identify locations and industry classification of HQs of each corporation. 3. Two-type of datasets were created: one is based on the location of business establishments which the municipality transacted directly 1 Primary outflows, and the other is based on the location of HQs of companies 2Secondary outflows 4. Estimation of the amount of primary and secondary outflows Transaction amount was aggregated by both the location of businessestablishments and the HQs. 11

13 Image of monetary outflows City gov. A town B city C state City gov. A town C state B B B Primary outflows City government providers sites Secondary outflows providers sites location of their HQs *However, this study has a strong hypothesis that all transaction amount counted by business establishments is supposed to transfer to that of HQs at present 12

14 Outline Introduction: purpose of this study Local Economies in Japan and excess concentration on Tokyo Data and Methodology Results and Conclusions 13

15 Result (1): Primary Outflows Dataset based on the location of business establishments reflects the features of primary outflows Name of Business Transaction amount Organization region % (JPY) % Yamanashi prefecture ,753 million 87.1 Tsuru city ,148 million 67.9 Kofu city million 8.8 Tokyo prefecture million 10.9 Most of money from the city government goes into local areas while 11% of transaction amount flows out to Tokyo. Public expenditures stay within the local area Prioritizing local business a beneficial effect 14

16 The directions of monetary flows Green arrows indicate the directions from Tsuru to business establishments Regional transaction amount Kofu Tsuru Tokyo 15

17 Result (2): Secondary Outflows Dataset based on the location of HQs reflects the features of secondary outflows Name of region Organization Business establishments and HQs Transaction amount Difference from Primay Outflow % (JPY) % Yamanashi prefecture ,610 million million Tsuru city ,006 million million Kofu city million million Tokyo prefecture million million Most of money from the city government also stays in local areas while Economic leakage to Tokyo increases 16

back-flow of money) Red arrows display the

18 The monetary directions from BEs to HQs Orange arrows indicate the direction from business establishments to HQs 140 arrows = Transferred transaction (It s likely to mean back-flow of money) Red arrows display the transactions transferred to Tokyo Kofu Tokyo Tsuru 17

19 Result (3): Additional Economic Leakage from BEs to HQs Differences of monetary inflows from that of outflows at the stage of secondary outflows Tsuru has the most amount of outflow: 32 branches in Tsuru transfers 81 million JPY to external area. Kofu, the prefectural capital of Yamanashi, has lots of additional inflows (23 HQs) and outflows (44 branches). Tokyo has an additional inflow(69 HQs) over additional outflow (8 branches), and its net amount of money reaches 131 million JPY. Kofu -26 million Tokyo +131 million Tsuru -81 million 18

Result (4): Economic Leakage by industry classification Examining expenditures by industry based on the secondary outflow shed light on the current regional economic structure in Japan Rank Industry

putflow INDUSTRIES UNABLE TO 1 CLASSIFY 391,089,684 21,000 CONSTRUCTION 44,360,519 25,527,210 SERVICES 179,383,026 58,368,541 2 FORESTRY 4,197,000 0 FINANCE 2,520,034 TRANSPORT and 2,179,969

20 Result (4): Economic Leakage by industry classification Examining expenditures by industry based on the secondary outflow shed light on the current regional economic structure in Japan Rank Industry Secondary outflow Tsuru Kofu Tokyo Transaction Difference from Transaction Difference from Transaction Industry Industry amount primary putflow amount primary putflow amount Difference from primary putflow INDUSTRIES UNABLE TO 1 CLASSIFY 391,089,684 21,000 CONSTRUCTION 44,360,519 25,527,210 SERVICES 179,383,026 58,368,541 2 FORESTRY 4,197,000 0 FINANCE 2,520,034 TRANSPORT and 2,179,969 COMMUNICATIONS 58,663,602 50,202,248 3 MINING 149,310 0 GOVERNMENT SERVICES 593,613 WHOLESALE and RETAIL 21,350 SALE 83,873,399 18,883,534 4 REAL ESTATE 0 0 FORESTRY 0 ELECTRICITY, GAS, HEAT 0 SUPPLY 117,918,023 6,125,472 5 ELECTRICITY, GAS, HEAT SUPPLY 0 0 MINING 0 0 FORESTRY GOVERNMENT SERVICES 262,487,830-6,160 REAL ESTATE 0 0 MINING MANUFACTURE 78,298,703-20,806 INDUSTRIES UNABLE TO 87,590,164 0 FINANCE 5, FINANCE 0 WHOLESALE and -2,200,878 RETAIL SALE 21,263, ,059 GOVERNMENT SERVICES 4,200 0 TRANSPORT and INDUSTRIES UNABLE TO 9 2,003,125-2,505,704 MANUFACTURE 492,969-4,294,100 COMMUNICATIONS CLASSIFY 8,638,121 0 WHOLESALE and RETAIL ELECTRICITY, GAS, 10 75,521,858-12,628,380 SALE HEAT SUPPLY 0-5,048,756 REAL ESTATE 0-64, CONSTRUCTION 1,132,253,169 TRANSPORT and -29,325,585 COMMUNICATIONS 0-15,912,782 CONSTRUCTION 7,267, , SERVICES 129,109,704-35,092,572 SERVICES 95,618,715-28,893,267 MANUFACTURE 20,301,255-1,043,914 Service, Transportation and Communications, Wholesale and Retail Sale, and Electricity converge on the metropolitan area Construction and (Regional) Finance flow out to the regional center Government service and Forestry =local-oriented industries 19

21 Conclusion(1) 1. Local expenditures mostly flow back to local economy Prioritizing local businesses on public services can be said to be effective in staying money within a local area Corporations in Tsuru gain 65-68% of transaction amount Corporations in Yamanashi prefecture: 82-87% *Future study need to examine whether this prioritizing local businesses can boost local economies as a whole. 2. Economic leakage to Tokyo Tokyo absorbs 10-15% of transaction amount The second largest area to connect with public expenditure of a local municipality 20

22 Conclusion(2) 3. Accumulation of highly specialized industries in One side of the current regional economic structure in Japan Competitiveness of companies headquartered in Tokyo For example, ITS management service, telecommunications, medical services, publishing services, and scientific research, professional and technical services, etc. Tsuru /Yamanashi: manufacture, wholesale and retail sale, construction, etc. 4. Linkage between economic leakage to Tokyo and the excess concentration in Tokyo 21

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