Long-run analysis on convergence of Japanese local price levels: A pairwise approach

This paper investigates the convergence of local price levels within Japan, using long-run data spanning six decades and based on a pairwise approach. The analysis investigates convergence of all binary combinations of local price levels, rather than choosing a particular city as reference. The results indicate that the null hypothesis of no convergence is rejected, but also that a substantial portion of local price levels fail to converge within Japan. Convergence is limited to some extent. The extent does not substantially change over periods. The results also show that the likelihood of convergence is influenced by population growth rates and the distance between areas. With differing population growth rates and a large distance between locations, convergence between areas is unlikely.