Estimating Headquarter Service as Input and Output and Evaluating its Effect on Prefectural GDP and Productivity

Author Name ARAI Sonoe (Statistical Specialist, RIETI) / YoungGak KIM (Senshu University)
Creation Date/NO. March 2017 17-J-013
Research Project Refinement and Analysis of the Regional-Level Japan Industrial Productivity Database: Providing basic information for Japan's regional development policy
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The current System of National Accounts (SNA) shows a huge inconsistency (26 trillion yen) between national and prefectural accounts in terms of gross domestic product (GDP) estimates. One of the main reasons for this discrepancy is the difference in concept and treatment of the headquarter (HQ) functions of firms. The current prefectural accounts of 46 prefectures excluding Tokyo do not treat HQ as a special unit generating a unique value-added "HQ service." Accordingly, HQ service is not accounted as an intermediate input in each producing establishment in the prefectures. On the contrary, Tokyo, which has many HQs in the area, estimates its original "Tokyo Input-Output Table" treating HQ service as an independent product term.

Against this background, this research estimates HQ service as a value-added generated by HQs locating in each prefecture and HQ service as an intermediate input used by establishments spanning multiple prefectures, and analyzes the impact of the new method on the estimates of prefectural GDP and productivity gap among prefectures.

By estimating prefectural GDP utilizing a new input-output (IO) table, we find that, in principle, the gross output of prefectures with more producing establishments are overestimated compared with those of other prefectures with more HQs.

This research contributes to the literature by suggesting new and more consistent estimation methods of prefectural accounts for greater accuracy. We hope this analysis provide a basic insight to the further discussion on the effect of centralization and decentralization of HQs on the local economy, which is one of the hottest topics of regional revitalization.