The Impact of Regional Factors on the Business Startup Ratio in the Japanese Manufacturing Sector: A comparative analysis of high-tech and low-tech industries

Author Name OKAMURO Hiroyuki  (Associate Professor, Graduate School of Economics, Hitotsubashi University)
Creation Date/NO. June 2006 06-J-049
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In recent years the business startup ratio in Japan has remained sluggish, and the decline in the ratio has been particularly serious in the manufacturing sector that is a major source of technological innovation. Startups of firms and business establishments with advanced technological capabilities play an important role in vitalizing regional economies. Yet in spite of considerable interregional disparities in startup ratios, few econometric analyses have to date been conducted in Japan in relation to regional determinants of new startups, and no studies of startups on an industry-specific basis.

This paper uses microdata from METI's Census of Manufactures to conduct an econometric analysis on the regional determinants of the startup ratio of business establishments in the manufacturing sector during the period from 1998 to 2000. The major advantages of this research are that the regions used as units for the analysis are industrial districts that are smaller in scope than prefectures; that the analysis is limited to small-scale startups; and that we distinguish between the startups in high-tech and low-tech industries according to the average R&D intensity of their industry. The results of cross-section OLS analysis demonstrate that the business density, the ratio of manufacturing industries, and the average scale have a significant impact on the business startup ratio, both in high-tech and low-tech industries. The difference between these industries is also clearly evident in the effects of unemployment ratio, ratio of university graduates, and ratio of high-tech industries. On the other hand, no significant impacts were found with regard to expected profit and cost levels. These results suggest that the agglomeration of the manufacturing industries acts as a seedbed for business startups, and that startups in low-tech industries are in part supported by the presence of unemployed people.