The Role of Structural Transformation in Regional Convergence in Japan: 1874-2008

Extending the literature on productivity convergence to a multi-sector growth framework, we show that σ-convergence in regional productivity growth can be decomposed into σ-convergence in sectoral productivity growth and σ - convergence in structural transformation-led productivity growth. Empirical support is provided using novel historical datasets at the Japanese prefecture level from 1874 to 2008. In pre-war Japan (1874–1940), regional convergence was primarily driven by productivity growth in the secondary sector. The rapid productivity convergence within the secondary and tertiary sectors relative to that in the primary sector between 1890 and 1940 provided an important base for the large convergence effects of structural transformation in the post-war years through a larger sectoral productivity gap in the lagging regions compared to the leading regions. However, the pace of regional convergence gradually slowed down and since the early 1970s the σ -convergence of structural transformation has been offset by the σ-divergence of within-sector productivity growth and vice versa, thwarting the pace of convergence in aggregate productivity.