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Uncovering Functional Blocks in Interregional Production Networks: Evidence from Input-Output Linkages in Japan

Shota Fujishima

Abstract

This paper examines the latent functional block structure of Japan's production network using interregional input-output data. To isolate non-trivial production linkages, we first estimate a structural gravity model to account for spatial frictions and economic scale, and then apply a weighted stochastic blockmodel (SBM) to the resulting residual network. Because these residual linkages often connect distant regions, the SBM is well suited to grouping region-industry pairs based on their shared macroeconomic roles. The results reveal that even after explicitly filtering out the mechanical effects of geographic proximity, the network is organized into functional blocks that maintain a high degree of regional coherence. Beyond this baseline spatial clustering, we find evidence of cross-regional integration, a structural bifurcation between manufacturing and urban services in metropolitan areas, and broadly spanning primary sectors. These findings provide a network-based perspective on regional coordination, offering guidance for how structurally defined production blocks-rather than simple geographic proximity-can inform wide-area policy design.

Uncovering Functional Blocks in Interregional Production Networks: Evidence from Input-Output Linkages in Japan

Abstract

This paper examines the latent functional block structure of Japan's production network using interregional input-output data. To isolate non-trivial production linkages, we first estimate a structural gravity model to account for spatial frictions and economic scale, and then apply a weighted stochastic blockmodel (SBM) to the resulting residual network. Because these residual linkages often connect distant regions, the SBM is well suited to grouping region-industry pairs based on their shared macroeconomic roles. The results reveal that even after explicitly filtering out the mechanical effects of geographic proximity, the network is organized into functional blocks that maintain a high degree of regional coherence. Beyond this baseline spatial clustering, we find evidence of cross-regional integration, a structural bifurcation between manufacturing and urban services in metropolitan areas, and broadly spanning primary sectors. These findings provide a network-based perspective on regional coordination, offering guidance for how structurally defined production blocks-rather than simple geographic proximity-can inform wide-area policy design.

Paper Structure

This paper contains 15 sections, 7 equations, 2 figures, 2 tables.

Table of Contents

  1. Introduction
  2. Empirical Strategy
  3. Data
  4. Empirical Specification
  5. Residual Network Construction
  6. Network Clustering Results
  7. Block Representation of the Residual Network
  8. Interpretation of Clusters
  9. Implications for Regional Coordination
  10. Conclusion
  11. Appendix
  12. Model-Based Motivation
  13. Intermediate Input Flows
  14. Mapping to the Empirical Specification
  15. Full Estimation Results of the Gravity Model

Figures (2)

  • Figure 1: Regional classification used in the interregional input--output table.
  • Figure 2: Cluster assignments of region--industry pairs based on the residual input--output network. Rows correspond to regions and columns correspond to industries. Each cell reports the cluster to which a given region--industry pair belongs, with both colors and numerical labels indicating cluster membership; the numbering of clusters is arbitrary and has no ordinal meaning.