Inbound Tourism Demand and Japanese Regional Productivity before the COVID-19 Pandemic: The role of tourism agglomeration and electronic payment

This study utilizes prefectural panel data for the 2014-19 period to examine whether inbound demand contributes to the productivity growth of local economies. Before the COVID-19 pandemic, the destinations of inbound visitors gradually diffused to non-metropolitan regions, and a certain number of foreign visitors to Japan would visit many non-metropolitan destinations. With an increase in the number of foreign visitors to each region, IT-related factors, represented by cashless payments and reservation services through travel websites, have advanced throughout Japan. How did the agglomeration of tourism and the use of IT because of the dispersion of visitors to non-metropolitan areas of Japan affect local economies?

In this study, the number of visitors to Japan is measured in terms of Tourism Market Potential (TMP), which is "the size of metropolitan and non-metropolitan (tourism) demand from foreign visitors to Japan," and is used for the agglomeration effect. TMP does not measure the gross effect in terms of the simple scale of the number of visitors to Japan but rather the net effect, which includes accessibility from the origin to the destination. We then analyze how regional TMPs and IT-related factors affect productivity and wages in the prefectures. The estimation results indicate that both TMP- and IT-related factors have a positive impact on productivity and wages in the prefectures visited.