Agglomeration Economies, Mechanization, and Changes in Product Quality: An inquiry into the post-war development of the Sake brewery clusters in Japan, 1980-2020

While agglomeration economies contribute to the performance of clustered firms, their changing roles are rarely analyzed. This study explores how technology choices and changing nature of agglomeration economies affected firm performance in the Japanese sake (rice wine) brewing industry from 1980 to 2020. Using plant-level data, we find that agglomeration benefits arose from the sale of sake from small unknown firms to large established firms when production was labor-intensive, but its role diminished as scale economies emerged with mechanization. As demand for high-quality sake increased, collective internalization of information spillover benefits appears to become a major source of agglomeration economies.