Understanding Regional Growth Dynamics in JAPAN: Panel Cointegration Approach Utilizing The PANIC Method

This study aims at understanding regional growth dynamics in Japan using nonstationary panel data. Since the panel unit root test does not adequately produce a detailed picture of the development of Japanese prefectures, we follow a panel cointegration approach using the PANIC method. We find that there is one common source of growth to which prefectures attach different long-run weights and that the per capita real income of follower-prefectures will catch up to that of leader-prefectures. Using the concept of relative convergence, we find that although the poor stay poor, the relative income gap will narrow substantially in the future.