This paper examines the influence of vertical and horizontal intergovernmental relationships on industrial policy making by local governments in the course of decentralization. It focuses on the planning of new regional industrial policy under the Act on Formation and Development of Regional Industrial Clusters through Promotion of Establishment of New Business Facilities, etc. in the cities of Yokkaichi and Kitakami. In Japan, prefectures play a critical role in planning development. On the

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... trary, most municipalities have little relevance to regional economic policy-making processes and are not able to build partnerships with other municipalities belonging to the same planning region, although some pioneering municipalities have undertaken economic development planning. Schemes to encourage cooperation among municipalities are required to encourage economic policy making on a regional scale.