Agglomeration and land rents: Evidence from the prefectures

We use Japanese prefectural wage and land rent data to estimate the magnitu de of agglomeration effects in manufacturing and financial services. We als o examine the geographical range of agglomeration effects by estimating the extent to which they diminish with distance, using a specification that en compasses the polar cases of purely local agglomeration economies, on the o ne hand, and national increasing returns, on the other. We find that the ex tent of agglomeration economies in both industries is significant, but that their effect decays much faster with distance in financial services than i n manufacturing. That is, the geographical reach of spillovers in financial services appears to be much lower than in manufacturing. (C) 1999 Academic Press.