The Benefits of Urban Agglomeration: Is Tokyo a Unique Case?

The greater the density of working population in the vicinity of an office building, the greater the potential number of face-to-face contacts per day, and the greater the productivity of office operations. Such is the benefit of urban agglomeration.



The productivity of offices located in central Tokyo is far greater than the productivity of those located in other Japanese cities. Is this high productivity essentially attributable to the greater agglomeration in Tokyo? Or is a totally different production function occurring due to the uniqueness of goods and services produced there, or because Tokyo is Japan's capital? This paper analyzes these issues.



Office rents are relatively high in areas with a high degree of agglomeration. Taking advantage of this correlation, a production function for office operations within a single city has been estimated. In this paper, the same measurement method is applied to a number of cities. Based on the micro-data on seven major government-decreed cities, the paper shows that output-input relationships occur in all but one city, Sapporo. This can basically be explained by a single production function. In other words, it demonstrates that even if a dummy variable corresponding to the respective cities is added to the production function, it does not produce a statistically significant effect.



This analysis has found that the productivity difference between Tokyo and other cities stems fundamentally from the difference in the economy of scale, and is neither attributable to the uniqueness of goods and services produced in Tokyo, nor to its being the national capital.