The Kansai economy - the second- largest regional economy in Japan - has been stagnant in recent decades. Between 1970 and 2010, Kansai’s share of Japan’s GDP decreased from 19.3% to 15.6%, whereas its population share remained almost unchanged. The gap be tween Kansai and Japan’s largest economic region, Kanto, has widened in terms of Gross Regional Product (GRP) per capita. Kanto’s GRP per capita was 6.2% higher than that of Kansai in 1955, but 19.8% higher by 2009. These statistics imply some persistent, region - specific structural difficulties in Kansai. We investigate structural causes of chronic stagnation in the Kansai economy using a basic Real Business Cycle framework. Few prior studies have considered the region in a strictly theoretical manner, though some empirical studies have estimated the production function or consumption function in Kansai. Our study provides additional evidence that emphasizes the importance of improving labor productivity and attracting capital investment for reinvigorating the Kansai economy and for making Kansai the largest growth center in Japan.