Industrial relocation policy, productivity and heterogeneous plants: Evidence from Japan

Do regional policies for promoting periphery development attract high- or low-productivity firms? Though whether policies improve the core-periphery productivity gap hinges on this question, no consensus is found in theoretical models. This paper uses plant-level data covering all regions in Japan during the period of active relocation policies. Our estimation results from plant-level regressions and propensity-score matching show that the average productivity of plants is significantly low in regions targeted by relocation policy programs. By comparing productivity distributions across plants before and after the start of each policy program, we find that low-productivity plants are attracted to targeted regions.

► We examine how industrial relocation policy is related with plant productivity.
► We use plant-level data during the period of active relocation policies in Japan.
► We report results from regressions, matching and distribution comparisons.
► The average productivity of plants is significantly low in targeted regions.
► Low-productivity plants are attracted to targeted regions after each policy.