Economic division and spatial relocation: The case of postwar Japan

This paper empirically investigates the effect of accessibility to markets on economic growth by using a new economic geography (NEG) model and the case of the economic separation of Japan and Korea after World War II. Korea was a Japanese colony from 1910 to 1945, and gained independence after World War II. This historical relationship between Japan and Korea can be interpreted as one of economic integration and division. We focus on the period of division and estimate the effect of the loss of the accessibility to the Korean market on the growth in postwar Japanese cities. By using a difference-in-differences (DD) methodology, we confirm that cities located close to Korea showed a relatively greater decline after the division of the colonial market, implying that accessibility to markets positively affects economic growth. Moreover, our results suggest that the large Japanese migratory movement observed in 1950-1970 can be interpreted as the relocation of industry that resulted from the division shock in 1945. J. Japanese Int. Economies 22 (3) (2008) 383-400.