The role of structural transformation in regional convergence in Japan: 1874–2008

Abstract Japan's regional convergence of productivity levels throughout the twentieth century can be best described as a cumulative process of ‘catching up, forging ahead, and falling behind’. Using a novel dataset spanning 135 years (1874–2008), this study finds support for a crucial role played by structural transformation in convergence. The pace of productivity catch‐up and convergence accelerated in the mid‐1950s with the help of structural transformation, particularly in the period from 1955 to 1965. Structural transformation explains, on average, about 30 per cent of the aggregate productivity growth, and its effect intensified in prefectures with faster movements of labour across sectors and larger sectoral productivity gaps. However, since the early 1970s, its contribution to the convergence was frequently offset by within‐sector productivity growth, in turn thwarting the pace of convergence. These counter‐balancing effects contributed to the diverse pathways of productivity catch‐up at the prefecture level.