On "economies of sequence" in the architectural theory of agglomeration: A case of the Kyoto tourism industry

Kuchiki, Akifumi Article On "economies of sequence" in the architectural theory of agglomeration: A case of the Kyoto tourism industry Economies Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Kuchiki, Akifumi (2020) : On "economies of sequence" in the architectural theory of agglomeration: A case of the Kyoto tourism industry, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 8, Iss. 1, pp. 1-17, https://doi.org/10.3390/economies8010015 This Version is available at: https://hdl.handle.net/10419/257064 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Economies 2020, 8, 15; doi:10.3390/economies8010015 www.mdpi.com/journal/economies Article On ‘Economies of Sequence’ in the Architectural Theory of Agglomeration: A Case of the Kyoto Tourism Industry Akifumi Kuchiki College of Bioresource Sciences, Department of International Development Studies, Nihon University, Fujisawa 252-0880, Japan; kuchik[email protected] Received: 10 January 2020; Accepted: 11 February 2020; Published: 24 February 2020 Abstract: This paper focuses on an architecture-based theory of agglomeration. An agglomeration is composed of a number of segments such as physical infrastructure facilitation including airports and stations. ‘Economies of sequence’ can be defined as the sequencing of the segments toward the efficient building of an agglomeration. The main three findings are as follows: first, foreign nationals from Kansai International Airport Granger-cause the number of tourists to Kyoto Prefecture, foreign nationals from Kansai International Airport Granger-cause the number of foreign tourists to Kyoto City, and passengers at JR Kyoto Station Granger-cause the number of tourists to Kyoto City; second, the number of foreign tourists Granger-causes revenues in the tourism industry in the cases of Malaysia, the United States of America, and China; and third, the promotion of the tourism industry to redevelop Kyoto station mall in 1997, the “Kyoto Winter Special” campaign in 2003, and the global “Travel & Leisure” destination SNS (social networking service) promotion in 2015 were effective in building the segments of a tourist agglomeration. In conclusion, the economies of sequence of the segments of a tourism industry agglomeration are as follows: the first priority is to reduce transportation costs for tourists through the renovation of airports and stations, and the next segments for enhancing the level of cultural elements are a branding strategy through the promotion of the tourist industry by campaigns and projects using social network systems. Keywords: tourism industry; agglomeration; architecture theory; segment; economies of sequence; transportation costs 1. Introduction Many countries including Japan now face a serious issue in terms of regional development due to the decentralization of the government (see METI, 2020). Industrial agglomeration policy has been used as the main promoter of regional development in Asia since the Plaza Accord was agreed in 1985 (see Kuchiki and Tsuji, 2008), with such agglomeration defined as the spatial concentration of economic activity. The organization of an industrial agglomeration involves three factors: the location of the industrial agglomeration, the sequence in which the segments of the industrial agglomeration are built, and the organizational management of the industrial agglomeration. Kuchiki (2019) proposed and classified the various theories on industrial agglomeration into three categories: (i) location-, (ii) architecture-, and (iii) management-based theories—as presented in Table 1. Economies 2020, 8, 15 2 of 17 Table 1. Three theories on industrial agglomeration. Theory (i) New Economic Geography (ii) Flowchart Approach (iii) Diamond Model Fujita, Krugman & Venables (1999) Kuchiki, Mizobe & Gokan （2017） Porter (1990) Theory (i) Theory of location (ii) Theory of architecture (iii) Theory of geographical management Characteristics To examine the role of location in economic decision-making Introduction of dynamic processes in segment building Finding the factors of "competitive advantages" of a region Key factors Product differentiation in monopolistic competition, and transport costs Efficient sequencing in building the segments of industrial agglomeration Four factors: 1. Demand conditions, 2. Factor conditions, 3. Firm strategy, structure, rivalry, 4. Related and supporting industries Source: Kuchiki, A. and I. Ohno. First, (i) ‘new economic geography’ is used to examine the role of location in economic decision-making. Economic geography allows for the discussion of land use, or where and why economic activity takes place. (Fujita et al., 1999) surveyed the von Thünen analysis of land use, in which economic activity occurs and cities are located, as one stream of location theory based on the German tradition. They then developed a new theory of economic geography by using the factors of product differentiation in monopolistic competition and transport costs. Second, (ii) ‘the flowchart approach’ is an architecture-based theory of architecture for industrial agglomeration. Figure 1 shows the flowchart approach in the case of a manufacturing agglomeration. The theory discusses how the segments of an agglomeration are sequenced for their efficient construction. Economies 2020, 8, 15 3 of 17 Domestic Export (a) Industrial Zone Export Processing Zone (b) (c) (d) Source: Author. Related firms: supporting industries: Agglomeration Market with saucers Capacity building 1. Infrastructure 2. Institutions 3. Human Resources 4. Living conditions Anchor Firm (Assemblers) Figure 1. The flowchart approach to a manufacturing industry agglomeration. Source: Author. Third, Porter (1990) developed (iii) his diamond model to specify the four factors, shown in Table 1, contributing to the competitive advantage of a region in terms of geographical management theory. An agglomeration is composed of a number of segments consisting of physical infrastructure facilitation including ports and highways, institution building, human resources development, and satisfaction with living conditions as is shown in Table 2. A sequence, or iterative order, is the dynamic process through which the segments of an agglomeration are built. Table 2. The segments of an industrial agglomeration. Capacity Segments Infrastructure Roads Railways Airport Port Communication Water Electricity Industrial zones Human resources Unskilled labor Engineers Managers Institutions Laws and regulations Land ownership Foreign exchange system Economies 2020, 8, 15 4 of 17 Political system Living conditions Housing and entertainment Hospitals and schools Living conditions: Cultural aspects Dynasty: Heian Dynasty Food: Kyoto vegetables Music: Gagaku traditional music History: Temples and shrines Textile: Nishijin textile Handiwork: Kiyomizu ceramic Painting: Water color painting Resort: Amanohashidate Alcoholic beverage: Sake Source: Author. Kuchiki (2019) defined ‘economies of sequence’ as the selection of any two segments from among the entire group of segments of an industrial agglomeration and the sequencing of the segments toward the efficient building of an agglomeration. The necessary conditions of the economies of sequence hold true if the Granger causality test holds true. The integration of all the economies of sequence into the flowchart approach affords the overall process for efficiently building an industrial agglomeration. This paper follows the classification of the three theories of (i) location, (ii) architecture, and (iii) geographical management on industrial agglomeration. The paper will neither analyze (i) location nor (iii) geographical management, but focuses instead on (ii) an architecture-based theory of agglomeration. Spatial economics in (i) new economic geography suggests that segments to reduce the transport costs for tourists under a threshold value are the first priority in sequencing segments to satisfy the pre-condition that tourists can move at low costs under a threshold value. The diamond model in (ii) geographical management reasons by analogy that segments to strengthen the competitiveness of a region are the next priority to brand a region from the point of cultural aspects. Accordingly, this paper discusses both segments related to the reduction of transport costs in (i) new economic geography and the segments related to cultural aspects in (ii) geographical management. Kuchiki and Tsuji (2008) proposed and Kuchiki et al. (2017b) established (ii) a flowchart approach to the architectural theory for building a manufacturing industry agglomeration. There are many papers analyzing the tourism industry, including Yang et al. (2019) and Dibeh et al. (2019), regarding Beijing, China and Lebanon, respectively. However insufficient attention has been paid to tourism industry agglomerations in architectural theory. The purpose of this paper is to identify the facts of the ‘economies of sequence’ in tourism industry agglomerations and its attempts to establish an appropriate architectural theory by using Granger causality tests and a dummy variable method. As an example of the types of industries suited to the formation of industrial agglomerations, this paper will focus on the tourism industry in Kyoto, Japan. The main three findings are as follows: first, foreign nationals from Kansai International Airport Granger-cause the number of tourists to Kyoto Prefecture, foreign nationals from Kansai International Airport Granger-cause the number of foreign tourists to Kyoto City, and passengers at JR Kyoto Station Granger-cause the number of tourists to Kyoto City; second, the number of foreign tourists Granger-causes revenues in the tourism industry in the cases of Malaysia, the United States of America, and China; and third, the promotion of the tourism industry to redevelop Kyoto station mall in 1997, the “Kyoto Winter Special” campaign in 2003, and the global “Travel & Leisure” destination SNS promotion in 2015 were effective in building the segments of a tourist agglomeration. Economies 2020, 8, 15 5 of 17 In conclusion, the economies of sequence of the segments of a tourism industry agglomeration are as follows: the first priority is to reduce transport costs for tourists through the renovation of airports and stations, the next segments for enhancing the level of cultural elements are a branding strategy through the promotion of the tourist industry by campaigns and projects using social network systems. In this paper, the sections are organized as follows. Section 2 defines the flowchart approach and concept of ‘economies of sequence’. Section 3 focuses on Kyoto in Japan as the prototype of a tourism industry agglomeration. Section 4 finds the facts of the economies of sequence, and Section 5 provides a summary and conclusions. 2. The Flowchart Approach and Economies of Sequence This section establishes the concept of economies of sequence in segment building to formulate the flowchart approach to industrial agglomeration policy through the introduction of a time axis. (1) Flowchart approach to transport Figure 1 provides a summary of the steps in the formation of an agglomeration. The flowchart approach to building a manufacturing industry agglomeration allows the mechanism of an industrial agglomeration to be explained from the perspective of segment building. In general, the segments consist of physical infrastructure (e.g., roads and electricity supply), institutions (e.g., laws and regulations), and human resources and living conditions (e.g., schools, hospitals, shopping malls, and cultural elements), as presented in Table 2. The segments associated with living conditions, which are key to building the other segments of the industry agglomeration, consist of museums, shopping malls, academic cities, resorts, cultural elements, and so on. The cultural elements themselves consist of historical and artistic elements as well as food, alcoholic beverages, and so on. The flowchart approach is not purely theoretical. Instead, it provides a practical hypothesis applicable to real-world industrial agglomeration policy as we can effectively form an agglomeration by following the four steps below: Find ingredients or factors such as industrial zones, means of capacity building, and an anchor firm. Figure 2A shows a, b, c, d, and e. (i) Select the minimum number of ingredients from those given above for a flowchart. Figure 2B shows c, a, and e. (ii) Order them along a flowchart. Figure 2C prioritizes the ingredients. The number of ways we prioritize them is given by a mathematical ‘permutation’ as 3! = 3*2*1. In general, n! = n*(n − 1)*(n − 2)*…*3*2*1. However, we can only implement one policy. So, we must prioritize policy measures. (iii) Specify actors such as central government, local government, non-governmental organizations, or private firms and move forward one step on the flowchart if the answer is ‘No’. Economies 2020, 8, 15 6 of 17 c a e Agglomeration c a e Agglomeration Local government Yes No Industrial zone Capacity building Anchor firm Agglomeration (A) (B) (C) Figure 2. The flowchart approach. (A): a model; (B): an example; (C) roles of actors. The flowchart approach is shown in Figure 3. As mentioned above, the flowchart approach is a practical hypothesis applicable to real-world industrial agglomeration policy because we can form an industrial agglomeration as follows: find segments such as industrial zones, ports, highways; select the minimum number of segments; and then sequence them based on the results for ‘the economies of sequence’ described in the previous section. The flowchart approach illustrates the dynamic process of segment building in an industrial agglomeration after arranging the segments through the incorporation of the results of economies of sequence. Each step of the flowchart works toward finding economic agents and securing funding for the building of the respective segment. Industrial Zone Local Central SemiPrivate Local Central SemiPrivate gov. gov. gov. companies gov. gov. gov. companies ○ ○ 1 Infrastructure: Water Local Central SemiPrivate gov. gov. gov. companies ○2 Infrastructure: Electricity Local Central SemiPrivate gov. gov. gov. companies ○ ○ 2 1 Infrastructure:Communication Local Central SemiPrivate gov. gov. gov. companies ○2 Infrastructure: Transport Local Central SemiPrivate gov. gov. gov. companies ○3 Institutions Local Central SemiPrivate gov. gov. gov. companies ○ ○ 4 2 Human Resources Local Central SemiPrivate gov. gov. gov. companies ○2 Living Conditions Local Central SemiPrivate gov. gov. gov. companies Anchor Firms Find actors NPOs NPOs Find actors NPOs Find actors Find actors NPOs NPOs NPOs Find actors Find actors Find actors NPOs Priority of actors to bottlenecks Find actors NPOs NPOs (after finding actors) Yes Yes Yes Yes Yes Yes Yes No No No No No No No No Return Return Return Retur Return Return Return Return Figure 3. The process of finding actors. Source: A. Kuchiki and J. Kabir. First, we need to identify whether industrial zones have been established. If not, we must decide which actors should establish such zones. We then specify the actors, such as the central Economies 2020, 8, 15 7 of 17 government, local government, non-governmental organizations, or private firms, and move one step forward on the flowchart if the answer is ‘No’. Once we identify these actors, we return to the mainstream of the flowchart. We next apply the flowchart’s second step, segment building, which takes place after the establishment of the industrial zones. We examine whether the water supply is enough for the industrial zones. We then proceed down the flowchart to examine power supply, communication, and transportation. Figure 4 summarizes the priorities regarding the actors in segment building. Local government Priority 1 = industrial zone Priority 2 = water, electricity & communication Priority 3 = transport Priority 4 = institutions Central government Priority 1 = electricity Priority 2 = institutions Semi government Priority 1 = industrial zone Priority 2 = human resources NPOs Priority 1 = living conditions Figure 4. The sequencing of each actor. Source: A. Kuchiki and J. Kabir. (2) Economies of sequence The flowchart approach is a theory of architecture that allows the efficient sequencing of segments in an industrial organization. The results of ‘the economies of sequence’ are key to the success in completing an agglomeration and integrated into the flowchart approach to agglomeration policy. This section shows that the necessary conditions of the economies of sequence defined below hold true if the Granger causality test holds true. The economies of sequence can be mathematically defined as follows. Suppose that there are three periods: the first, second, and third periods. Let us examine two examples of segment formation sequencing in an industrial agglomeration. Policy measures, for which there are two candidate sequences (A and B), form a segment. Suppose that an agglomeration consists of three segments (s 1 , s 2 , s 3 ), say a port, a highway, and an industrial zone in the manufacturing sector model. The difference between A and B lies in the ordering of s 2 and s 3 . In A, the segment formation sequence is assumed to be s 1 , s 2 , and s 3 ; thus, it is assumed that the sequence of policy measures to form a production function in B is s 1 , s 3 , and s 2 . Accordingly, A and B can be notated as follows: A = {s 1 , s 2 , s 3 }, and B = {s 1 , s 3 , s 2 } = {a port, an industrial zone, and a highway}. Economies 2020, 8, 15 8 of 17 The production functions for sequence A and sequence B for gross regional products can be given as Y A and Y B , respectively. We assume, without loss of generality, that the production functions of sequences A and B are constant returns to scale. The production function after the implementation of the successful policy measures for {s 1 , s 2 , s 3 } is Y A = f ({s 1 , s 2 , s 3 }). C A and C B are the total costs of sequence A and sequence B, respectively, and c i (s k : V 0 ) (k = 1, 2, 3; i = 1, 2, 3) is the cost to implement the policy measures to form the segments s k in period i. Suppose that the production functions in sequences A and B in the third period are Y A and Y B , respectively, or Y A = f (A) = f ({s 1 , s 2 , s 3 }). The production costs of Y A are C A = (1 + r) 2 c 1 (s 1 : V 0 ) + (1 + r) c 2 (s 3 : V 0 ) + c 3 (s 2 : V 0 ), where we assume that the other conditions, or V 0 , are constant. Now, the productivity of A and B in the third period can be compared. Suppose that there exists economies of sequence between s 2 and s 3 ; that is, Y B is very small, approaching zero, due to the diseconomies of sequence between s 3 and s 2, while Y A is large. The segment formation sequence from s 3 to s 2 is inefficient in comparison to that of the segment formation sequence from s 2 to s 3 . In other words, the following three cases are possible: Y A > Y B in the case that {s 1 , s 2 , s 3 } is more efficient than {s 1 , s 3 , s 2 }, Y A < Y B in the case that {s 1 , s 3 , s 2 } is more efficient than {s 1 , s 2 , s 3 }, Y A = Y B in the case that {s 1 , s 3 , s 2 } is as efficient as {s 1 , s 3 , s 2 }. Figure 5 shows the case in which Segment 5 = Segment 1 = Segment 6 = Segment 7. It can be defined as follows. Segment5 Segment1 Segment6 Segment7 Agglomeration segment building Segment8 Segment2 Segment9 Segment10 Segment3 Segment11 Segment12 Segment4 Segment13 Segment14 Segment15 Agglomeration Figure 5. Flowchart approach to segment building. Source: Author. A weak definition of the ‘diseconomies of sequence’: C B → ∞, or Y B → 0, or Y B /C B → 0. We can, thus, define ‘economies of sequence’ as not ‘diseconomies of sequence.’ In the case of ‘economies of sequence’ between s 2 and s 3 , C A < ∞, and Y A > 0, and the economies of sequence exist between s 2 and s 3 , so that 0 < Y B /C B < Y A /C A . This demonstrates that sequence A is more efficient than sequence B. Economies 2020, 8, 15 15 of 17 Table 6. Results of Granger causality tests (without constant). Country Segment 1 Segment 2 Granger Causality Tests F-Test p-value Significance Spain the number of tourists the revenue of tourism 1.9864 0.1537 Spain the revenue of tourism the number of tourists 3.0843 0.05958 Yes Mexico the number of tourists the revenue of tourism 0.10194 0.9034 Mexico the revenue of tourism the number of tourists 3.1915 0.05447 Yes Turkey the number of tourists the revenue of tourism 1.0518 0.3611 Turkey the revenue of tourism the number of tourists 2.6598 0.08539 Yes Malaysia the number of tourists the revenue of tourism 3.6833 0.03634 Yes Malaysia the revenue of tourism the number of tourists 2.2743 0.1192 US the number of tourists the revenue of tourism 2.6226 0.08816 Yes US the revenue of tourism the number of tourists 1.4384 0.2522 China the number of tourists the revenue of tourism 4.0377 0.02731 Yes China the revenue of tourism the number of tourists 2.6798 0.08394 France the number of tourists the revenue of tourism 1.51 0.2362 France the revenue of tourism the number of tourists 0.37684 0.689 Italy the number of tourists the revenue of tourism 0.98684 0.3838 Italy the revenue of tourism the number of tourists 2.2377 0.1231 Thailand the number of tourists the revenue of tourism 0.38784 0.6817 Thailand the revenue of tourism the number of tourists 0.36452 0.6974 Japan the number of tourists the revenue of tourism 0.91279 0.4116 Japan the revenue of tourism the number of tourists 0.64271 0.5325 England the number of tourists the revenue of tourism 1.1837 0.3192 England the revenue of tourism the number of tourists 0.21244 0.8097 Germany the number of tourists the revenue of tourism 0.78436 0.465 Germany the revenue of tourism the number of tourists 0.36928 0.6941 Australia the number of tourists the revenue of tourism 0.65048 0.5286 Australia the revenue of tourism the number of tourists 1.8934 0.167 Source: Author. Economies 2020, 8, 15 16 of 17 5. Summary and Conclusions The flowchart approach provides an architectural theory for industrial agglomeration. The sequence of the formation of segments; i.e., the iterative order, is the dynamic process through which an industrial agglomeration is built. The economies of sequence are defined as the selection and efficient building of any two segments from among the total number of segments of an industrial agglomeration. The integration of all the economies of sequence through their integration into a flowchart approach provides the overall process of building an industrial agglomeration. The fact-finding on the ‘economies of sequence’ can be summarized as follows: First, foreign nationals from Kansai International Airport Granger-cause the number of tourists to Kyoto Prefecture, foreign nationals from Kansai International Airport Granger-cause the number of foreign tourists to Kyoto City, and passengers at JR Kyoto Station Granger-cause the number of tourists to Kyoto City. Second, the number of foreign tourists Granger-causes revenues in the tourism industry in the cases of Malaysia, the United States of America, and China. The first and second facts mean that segments related to the reduction in transport costs such as airports and railways in the segments of transportation infrastructure increased tourist numbers, resulting in an increase in revenues in the tourism industry. Third, based on the dummy variable method, the Kyoto case study of a tourism industry agglomeration indicates that the promotion of the tourism industry to redevelop Kyoto station mall in 1997, the “Kyoto Winter Special” campaign in 2003, and the global “Travel & Leisure” destination SNS promotion in 2015 were effective in building the segments of a tourist agglomeration in Kyoto in 2001, 2008, and 2015, respectively. In conclusion, based on the economies of sequence, the efficient sequence of segment construction is as follows: the first priority to reduce transport costs for tourists consist of the renovation of Kyoto Station and new express schedules that directly link Kansai Airport and Kyoto Station, with the subsequent segment to enhance the level of culture being a branding strategy through the promotion of the tourist industry. Lastly, segments to solve problems of ‘overtourism’ needed in the case of the Kyoto agglomeration require further discussion in the future. The policy implications of this paper are as follows: The policy makers need to take into account ‘economies of sequence’ in the dynamic processes of building the segments of an agglomeration. The results of Granger causality tests of the economies of sequence show that there exist the causality relationships in the dynamic processes. Accordingly, the completion of agglomeration construction depends on whether the judgment of the policy makers allows correct sequencing of the segments in order to efficiently build them. It is necessary to identify the current stage of a region along the flowchart approach in order to consider the economies of sequence in building the segments of a tourism agglomeration. In the tourism industry agglomeration, policy makers specify the segments of an agglomeration, then sequence them according to economies of sequence obtained in the paper. However, this paper analyzed the example of Kyoto as a case study and proposed a prototype model to apply to other cases in other regions, both in Japan and around the world. The agglomerations of manufacturing industries, such as the electric/electronics industry and the automobile industry, were analyzed by Kuchiki and Tsuji (2008) and so on. This paper applied the flowchart approach to build a tourism industry agglomeration. However, the flowchart approach is yet to be analyzed in other industries such as the information communication technology industry. In future we need to find new segments, explore the substitute data of segments, examine economies of sequence, and further establish the flowchart approach by increasing the number of samples. Funding: This work was supported by Japan Society for the Promotion of Science (JSPS) Grant Number 17H04549. Acknowledgments: We would like to thank Akemi Baba, Hideyoshi Sakai, Katsumi Nakayama and the referees for their valuable comments. 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