Regional Potential and Wage Differentials, Simulation of Regional Integration and Employment Distribution across Regions: NEG approach by interregional IO table

Author Name NAKAMURA Ryohei  (Faculty Fellow, RIETI) /IHARA Ryusuke  (Aomori Public College) /MORITA Manabu  (Value Management Institute, Inc)
Creation Date/NO. May 2010 10-J-031
Research Project Study of a Self-supporting Regional Economic System
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Based on the NEG model incorporating the interregional input-output structure, we estimate the differentials of wage structure and simulate the labor distribution patterns by changing transportation parameters in Japan. There are two kinds of approaches to estimate regional potential and/or wage equations in the NEG model: the first is the two-step approach with dummy variables (Redding and Venables, 2004, Head and Mayer, 2006, etc.) and the second is the single-step approach (Hanson, 2005, Brackman et al., 2006, etc.), which directly estimates parameters related to regional potentials. We evaluate these approaches by making use of interregional IO tables with nine regions in which regional CPI and income are available. In addition, the estimation is conducted by more comprehensive regional variables such as regional infrastructure, land endowment, and interregional/intersectoral trade data, which are classified into intermediate and final goods. Based on the estimation results, furthermore, we simulate the multi-regional NEG model of Japan, and investigate the equilibrium labor distribution which equalizes interregional utilities in different levels of transport costs.