13
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1979-84
1984-89
1989-94
1994-99
1999-2004
Break-even
(dy=-dw)
Equity Index
Growth
Average Income Growth
Distribtuion of Average Income and
Equity Index Growths of Prefectures (%, 1979-2004)
-1
-0.5
0
0.5
1
1.5
2
Hok
k
a
id
o
Ao
m
o
ri
Iw
a
te
Mi
y
a
g
i
Ak
it
a
Yam
a
g
a
ta
Fu
ku
sh
im
a
Ib
ar
ak
i
To
c
h
ig
i
Gu
n
m
a
Sa
it
a
m
a
Chi
b
a
To
k
y
o
Ka
n
a
g
a
wa
Ni
ig
a
ta
To
y
a
m
a
Is
hi
k
a
wa
Fu
k
u
i
Ya
m
a
n
a
sh
i
Na
g
a
n
o
Gi
fu
Sh
iz
u
o
ka
Ai
c
h
i
Mi
e
Sh
ig
a
Ky
o
to
os
a
k
a
Hy
o
g
o
Na
ra
Wa
k
a
y
a
ma
T
o
tto
ri
Sh
im
a
n
e
O
k
ay
am
a
Hi
ro
sh
im
a
Ya
m
a
g
u
c
h
i
To
k
u
sh
im
a
Ka
g
a
w
a
Eh
im
e
Kochi
Fu
ku
o
k
a
Sa
ga
Na
ga
sa
k
i
Ku
ma
mot
o
Oi
ta
Mi
y
a
za
k
i
Ka
g
o
sh
im
a
Ok
in
aw
a
Average Income and Equity Index Growths, Prefecture Averages (%)
Avg. Income Growth
Iquity Index Growth
Inclusive Growth
By definition, the break-even points
(i.e. the ones in which inclusive
growth is zero), lie on the red dotted
line, on which growth in average
income is equal to growth in the
equity index. The majority of
episodes shown in the chart point to
prefectures experiencing
deteriorating equality (i.e. negative
equity index growth), but achieving
“inclusive growth” by having
sufficiently high average income
growth (top-left panel, above the
red line). Cases in which both
average income and equality increases (top-right panel) are relatively rare. The1994-1999
and 1999-2004 periods are characterized by both low average income growth and increasing
inequality.
This finding is confirmed by examining
yearly averages across all prefectures
(text chart). Moreover, the chart reveals
that, on average, high growth in the late-
80s and the early-90s compensated for
increasing inequality (i.e. the negative
change in equity index), while the
negative growth in the late-1990s and the
early 2000s failed to keep inclusive
growth positive.
Another chart below shows prefectural
averages of growth rates
over time. The chart
confirms a relatively
small impact of the
equity index compared to
average income growth,
with a few exceptions.
For Wakayama,
Okayama, and Okinawa
prefectures, average
income growth is too low
to compensate for the
relatively high negative growth of the equity index, leading to near-zero inclusive growth.
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
1979-1984
1984-1989
1989-1994
1994-1999
1999-2004
Average Income and Equity Index Growths,
5-year Averages (%)
Avg. Income Growth
Iquity Index Growth Inclusive Growth
Inclusive Growth
14
Furthermore, there is no obvious “spill-over” effects to neighboring prefectures, despite the
fact that our income measures do not exclude households who resides in neighboring
prefectures.
In summary, from the decomposition of the inclusive growth measure presented in the
figures above, it is evident that the major driver on average of inclusive growth is the growth
in average income. One exception is the period between 1994 through 1999, where the
income growth was so weak that the negative growth in equality outweighed it. For the 1980s
through the early 1990s, the average income growth was at least four times stronger than the
deteriorating equity index growth. For the years between 1999 and 2004, the negative growth
was worsened by the negative growth in the equity index.
We now move to the econometric estimation. Our empirical specification follows a standard
panel model:
∗
where
∗
is the log-difference of our inclusive growth proxy or of its two subcomponents
(average income growth and change in the equity index); the common intercept;
is a K-
column matrix with explanatory variables; and the error term
has an individual (i.e.
prefecture) specific effect and the remaining disturbance,
.
Note that we use log difference (i.e. approximate percentage change, or growth) of 5-year
panel between the years 1979-2004. Hence, each of time index of length 5 represents a 5 year
period. Moreover, log differences are standardized to be an (average) annual rate by taking
the geometric mean. For instance, the first observation
∗
,
represents the average
growth rate over 1979-1984.
The explanatory variables are presented in the text table. The variables of main interest in our
study are the policy variables, which proxy some of the key policy objectives of a “complete”
Abenomics package. i.e.: i) achieving positive inflation in a stable manner; ii) increasing
flexibility in the labor market and reducing duality; iii) increasing the female labor
participation rate; and iv) increasing overall labor input. We also include control variables to
account for the size of the prefectural economy (initial GDP per capita) and the degree of
“aging” of each prefecture (elderly index, defined as the size of population 65 years old or
older divided by the size of working-age population). The frequency of these explanatory
variables is in general annual, with the exception of female labor participation rates. Since
the frequency of the dependent variable is every 5 year, all the explanatory variables are
converted to 5-year panel by taking averages. Due to data limitation at the prefectural level,
we use female labor participation rates for the entire work force (15 years and older), while
female labor participation rates for working age (15-64 years old) are often used in the
literature which uses national level data.