PUBLICATIONS & REPORTS

Contents Introduction

This study examines inter-regional spillovers in Fukuoka Prefecture that is located on the west side of Japan, near the Korean peninsula. There are two government-designated major cities in Fukuoka Prefecture: the Fukuoka city, the central city in Fukuoka Prefecture, and the Kitakyushu city, a big city with a population of about one million. The relationship between Fukuoka and Kitakyushu cities is with problems. Because the two cities are independently administered, each government can execute policies that best suit its own interests. However, it is important for Fukuoka Prefecture that both cities cooperate for achieving mutual economic benefits. We analyze this spillover within the framework of a multi-region vector autoregressive (VAR) model. To express the economic relationship in this study, Fukuoka Prefecture is divided into three parts: Fukuoka city, Kitakyushu city, and the rest of Fukuoka Prefecture. We subject the model to extensive sensitivity analysis, with particular attention to effects on the results of strong common output movements.