Synergy Effect of Combining Agriculture with Processing and Distributing Industries in the Okinawan Regional Economy: A new approach with the endogenous consumption IO model

Recently in Japan, many regions have been conducting agriculture vitalizing policies which makes industrial linkages to processing (manufacturing) and distribution (servicing) sectors from the perspective of input-output (IO) tables. In doing so, regions aim at enhancing regional value added. For example, instead of directly exporting primary products, exporting the processing goods of primary products with a proprietary regional distribution tool would yield a greater multiplier effect on the regional economy. We call this a synergy effect by combining primary, secondary, and tertiary sectors' inputs and outputs. In this paper, we try to quantitatively demonstrate such effects by introducing the endogenous consumption IO model and extending IO model by adding new sectors. In empirical investigation, we conducted a questionnaire in Okinawa prefecture and constructed an extended regional IO model, which was then implemented. The calculation and simulation results show that the substantial increase in regional value added is appealed by applying the above mentioned industrial close linkages, i.e., six industrialization: 6 = 1(primary)*2(manufacturing)*3(tertiary).