The Spillover Effects of Compact City Policy on Incumbent Retailers: Evidence from Toyama City

The compact city policy of Toyama City, Japan, aims to encourage density in both the city center and suburban hubs linked by public transport systems. The policy framework relates to the place-based policy, which targets geographic underperforming zones. Several town developments projected by this policy, including the development of housing, public and commercial facilities, and public transport systems, are conducted to increase the attractiveness of the target zones. Retail revitalization is then expected as a spillover effect through increasing market size. Using a difference-in-difference matching estimation with establishment-level panel data, this paper evaluates the policy impact on incumbent retailers located in the target zones, corresponding to the treatment group. The empirical results demonstrate that while the policy effects are not observed in the short run, the policy has a positive impact on both inputs and outputs for incumbent retailers in the long run. The existing policy framework, however, does not generate positive spillover effects on incumbent retailer productivity.