Investment strategy for sustainable society by development of regional economies and prevention of industrial pollutions in Japanese manufacturing sectors

- Japan effectively reduces greenhouse gas emissions and air pollution substances.
- Japan needs to allocate capital in regions with high investment effectiveness.
- Technology innovation makes it possible to balance economic growth and pollution prevention.
- The proposed approach is useful in guiding regional development of a sustainable society.

A balance between industrial pollution prevention and economic growth becomes a world-wide issue to develop a sustainable society in many industrial nations. To discuss the issue, this study proposes a new use of DEA environmental assessment to determine how to effectively allocate capital for developing regional industries. The amount of capital is used to invest for technology innovation for both local economic growth and environmental protection. In this study, the proposed approach separates outputs into desirable and undesirable categories. Inputs are also separated into two categories, one of which indicates an amount of investment on capital assets. The other category is used for production activities. The proposed approach unifies them by two disposability concepts. This study has evaluated the performance of manufacturing industries in 47 prefectures (local government units in Japan) by Unified Efficiency under Natural disposability (UEN), Unified Efficiency under Managerial disposability (UEM) and Unified Efficiency under Natural and Managerial disposability (UENM). The UENM is further separated into its two cases: with and without a possible occurrence on desirable congestion, or technology innovation, on undesirable outputs. This study has empirically confirmed that Japanese manufacturing industries need to make their efforts to reduce greenhouse gas emissions and air pollution substances by investing in technology innovation. Furthermore, most of economic activities are currently located at metropolitan regions (e.g., Tokyo) in Japan. To develop a sustainable society, Japan needs to allocate capital into regions with a high level of investment effectiveness by shifting the manufacturing industries from the metropolitan regions to much promising local areas identified in this study. Such a shift, along with technology innovation, makes it possible to reduce air pollutions in the entire Japan by balancing economic growth and pollution prevention. This empirical study confirms that the proposed approach is useful in both guiding regional planning and developing a sustainable society. It is easily envisioned that the proposed approach is useful for not only Japan but also the other industrial and developing nations.