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We conducted an analysis of productivity dynamics using the microdata of the Credit Risk Database (CRD), the Establishment and Enterprise Census and the Economic Census. We found that the negative exit effect in Japan is driven by the exit of some highly productive firms. This finding suggests that to reduce the negative exit effect policies to support SMEs should not be based on their size but by focusing on SMEs with high TFP that are actively investing.

This article examines the drivers of the long‐run structural transformation in Japan. It uses a dynamic input–output framework that decomposes the reallocation of the total output across sectors into two components: the demand side and the supply side, or technological change. To perform this task, we employ 13 seven‐sector input–output tables spanning 100 years (1885 to 1985). The results show that the demand‐side factors, as a combination of the Baumol and Engel effects, were the key explanatory factors in more than 60 per cent of the sector‐period cases in the pre‐Second World War period, while the supply‐side effect drove structural transformation in more than 75 per cent of such cases in the post‐Second World War period. Detailed decomposition results suggest that in most of the sectors, changes in private consumption were the dominant force behind the demand‐side explanations. The demand effect was found to be strongest in the commerce and services sector, which contributed to the rapid growth of GDP in Japan throughout the twentieth century.

The structural transformation started in Japan during the last decades of the past century and the institutional adjustments that followed have significantly reshaped personal and functional income distribution patterns. In this paper we investigate the long‐term drivers of the share of output accruing to labor in Japan. Our contribution lies in extending the theoretical SK schedule model by Bentotila and Saint‐Paul to multiple inputs and in providing new empirical evidence on Japan over the period 1970–2012. Results indicate that low‐knowledge‐intensive market services were mainly responsible for the decline in the labor share in Japan over the four decades considered. This was related to technological change and, more importantly, to labor and product market structural and institutional features. These drivers could have significantly contributed to reducing the bargaining power of labor vis‐a‐vis employers and, consequently, the labor share.

After the Meiji Restoration of 1868, Japan modernized its institutions and economic growth gradually picked up. Growth accelerated especially during the so-called high-speed growth era from 1955 to 1970, when Japan rapidly caught up with Western economies. The long-term sustained high-speed growth recorded during this period was unprecedented, not only in Japan, but worldwide. Using newly constructed Hitotsubashi estimates of Japan’s historical gross domestic product (GDP) statistics and a growth accounting framework, we analyze the sources of Japan’s economic growth through a historical perspective covering the longer period than other studies and explore why Japan was not able to accomplish such high-speed growth from 1885 to 1955. Since the mid-1960s the primary sector accounted for a large share of economic activity, we use a two-sector model in which the economy overall is divided into the primary sector and the non-primary sector. Our results suggest that TFP growth and capital accumulation in the non-primary sector played a major role in achieving high-speed economic growth. From this perspective, the fact that the capital stock per worker did not grow substantially before World War II is one of the key reasons why Japan did not experience high-speed growth during this period.

This paper examines Japan’s participation in global value chains (GVCs). To this end, we use plant-level data for Japan to split output in each industry in Japan’s manufacturing sector into output ...

The economic impact of information and communications technology (ICT) investment is visible only with a long time-lag, particularly in the case of employment. There are two contrasting effects of ICT investment on employment: the complementarity relationships between capital and higher skills and the substitutability relationships between capital and lower skills and between the ICT capital intensity and wage rate of unskilled workers. The purpose of this paper is to provide empirical evidence on the impact of the skill-biased technical change associated with ICT investment on labor demand in Japan and Korea. Our estimates of the effect of ICT intensity on the wage share based on Japanese and Korean data are generally consistent with the estimates obtained by O'Mahony et al. (2008) in the sense that we find capital-skill complementarity and technology-skill substitutability during the period 1995–2015.

Using the 2011 Word Input–Output Database (WIOD), we examine the economic impact of Korean reunification on Japan, China, the United States, and Russia by industry. We conduct a standard Leontief-type analysis with the assumption of supply constraints in the unified Korea. The results of our analysis show that Korea’s major trade partners would experience a substantial increase in GDP and employment through Korea reunification. In particular, we found that China would benefit the most from Korea reunification.

This study, using microdata from the Basic Survey of Japanese Business Structure and Activities, empirically examines the relationship among innovation, labour hoarding and employment growth at Japanese firms from 1991 to 2010. The main findings are as follows. First, the labour force of many firms in Japan is above the optimal level (labour hoarding). Second, labour hoarding is more serious among larger firms. Third, firms do not adjust employment instantaneously; if they have surplus labour in the current period, they will gradually reduce it. This is consistent with the theoretical model on employment adjustment that we propose. Fourth, all else being equal, firms’ conducting R&D are more likely to increase employment. Fifth, while we observe a negative correlation between firms’ total factor productivity growth and employment, total factor productivity growth through innovation has a positive impact on employment. Finally, in the manufacturing sector, product innovation, which we proxy by R&D expenditure, has a positive impact on employment, while in the nonmanufacturing sector, process innovation, which we proxy by capital investment, has a positive effect on employment.

The labor share in Japan has been declining significantly over the last three decades, accompanied by persistent stagnation and an unprecedented increase in economic inequalities. Since these dynamics are likely to be interrelated, understanding the drivers of the labor share might contribute significantly to the Japanese economic and policy debate. Surprisingly, the existing literature on the labor share in Japan is rather limited and confined to country or industry studies. We first attempt to analyze the drivers of the labor share in Japan at the firm level. To this aim, we employ a panel of manufacturing firms from the Basic Survey of Japanese Business Structure and Activities, spanning from 2001 to 2012. By means of panel data estimators, we show how, besides technological variables, firms’ labor share depends significantly on the share of regular workers, on the importance of firms’ international engagement, and on various institutional settings of the product and labor markets.

We investigate the long-term drivers of the labor share in Japan using data from the Japanese Industrial Productivity database from 1970 to 2012. The descriptive and econometric results indicate that the decline in the labor share observed in Japan during the period of analysis was highly concentrated in the low-knowledge-intensity sectors, the employment share of which has increased remarkably. These sectors also experienced a strong increase in non-regular workers, who constitute a secondary segment of the labor market in Japan, characterized by low wages and very limited union coverage. The low level of protection of this group of workers and the increase in market power concentration have probably contributed to reducing the bargaining power of labor vis-a-vis employers and, consequently, the labor share.

China is switching from economic growth based on extremely rapid capital accumulation to economic growth based on structural reforms and accelerated total factor productivity growth. Meanwhile, China will also face a serious excess saving problem as capital accumulation slows and, hence, needs to reduce its private saving rate. Based on this analysis, we estimated the economic impact of China's growth slowdown and hypothetical economic transformation on Japan, the USA and Germany using the world input–output database. We compared the following three scenarios for China's final demand in 2020 and economic growth from 2015 to 2020: (i) an optimistic scenario (GDP growth rate = 6.2%, investment/GDP = 0.501); (ii) a slowdown scenario (GDP growth rate = 4%, investment/GDP = 0.501); and (iii) a structural reform scenario (GDP growth rate = 6.2%, investment/GDP = 0.3). Our analysis suggests that Japan and Germany would suffer more from structural reforms in China than from a slowdown in growth. Meanwhile, for the USA, the employment decline triggered by structural reforms would be much smaller than the employment decline caused by a slowdown in growth.

Since the collapse of the bubble economy, economic growth rates in Japan have slowed down as a result of low capital accumulation. We focus on the low rate of return on capital, which led to this slow capital accumulation. Using Japanese KLEMS (JIP) database, we find that the increase in the capital/output ratio and low capital share led to the low rate of return on capital. Not only has the rate of return on capital declined, but also its variance has grown and the number of industries with negative rates of return has increased. Then, we estimate a modified factor price frontier model using industry-level data. In our estimations, the profit rate is explained not only by the real wage but also by intangible investments. Estimation results show that investment in IT and human resources leads to an increase in the profit rate. However, the complementary effects between research and development (R&D) capital and tangible capital are indefinite as suggested by Chun et al. (2015 14 ). Our study implies that the government should undertake a comprehensive innovation policy including improvements in IT and human resources and organizational structure as well as R&D investments to revitalize capital formation in Japan.

Using industry- and micro-level data, this paper examines why Japan's productivity growth has been slow for such a long time and how it can be accelerated in the future. Japan's capital–gross domestic product ratio continued to increase after 1991, and this increase in the capital–gross domestic product ratio must have contributed to the decline in the rate of return on capital in Japan by decreasing the marginal productivity of capital. On the other hand, Japan's accumulation of information and communication technology capital and intangible investment was very slow. Compared with large firms, which enjoyed an acceleration in the total factor productivity growth in recent years, Japanese small- and medium-sized enterprises were left behind in information and communication technology capital and intangible investment, and their productivity growth has been very low. Furthermore, as large firms expanded their supply chains globally and relocated their factories abroad, research and development spillovers from large firms to small- and medium-sized enterprises seem to have declined.

This paper develops and tests a simple model of the simultaneous determination of gross fixed capital formation by multinational Japanese firms in home and host countries. We treat multinational firms as multi-product firms, choosing optimal investment locations and production scale for each product. We test the predictions of the model on a unique dataset covering 1707 fixed capital investment decisions by (affiliates of) Japanese multinational firms in the manufacturing sector based on research conducted in 1996 and 1997. We find that the rate of investment is not only determined by factors affecting the return on investment levels in a country (e.g. effective demand and wages), but also by wage levels in other countries in which the firm operates manufacturing affiliates. Firms facing global liquidity constraints show systematically lower investment ratios, suggesting that financing constraints are another source of interaction between investments.

The balance of the world economy is shifting away from the established economies of Europe, Japan, and the USA, towards the emerging economies of Asia, especially India and China. With contributions from some of the world's leading growth theorists, this book analyses the long-term process of structural change and productivity growth across the world from a unique comparative perspective. Ongoing research from the World KLEMS Initiative is used to comparatively study new sources of growth - including the role of investment in intangible assets, human capital, technology catch-up, and trade in global value chains. This book provides comparisons of industries and economies that are key to analysing the impacts of international trade and investment. This makes it an ideal read for academics and students interested in understanding current patterns of economic growth. It will also be of value to professionals with an interest in the drivers of economic growth and crisis.

Does localisation of procurements, sales and management contribute to the profitability of overseas affiliates? This study examines this question by analysing the performance of Japanese multinationals’ manufacturing affiliates in China using an affiliate-level dataset for the period from 1989 to 2002 collected by the Ministry of Economy, Trade and Industry. We find that even though foreign multinationals often seem to enter China for the local market potential, affiliates with a higher local sales ratio tend to be less profitable – a pattern that is conspicuously different from that observed for Japanese affiliates in other regions such as the USA or the ASEAN4, where local sales orientation has a positive impact on profitability. On the other hand, we find that Japanese affiliates’ profitability was positively associated with their local procurement ratio. Using the coefficients of the profit function estimated from data on all Japanese manufacturing affiliates around the world, we calculate the effect of local sales and procurements on profitability by country, controlling for the level of GDP and per capita GDP. In the case of China, the localisation effects are positive following the country’s accession to the WTO, suggesting that both local procurement and sales expansion contribute to higher profitability in China.

Following the standard industry-of-origin methodology to measure production-side purchasing power parities (PPPs), this study for the first time provides a set of unit value ratios (UVRs) of manufacturing products between China, Japan, Korea and the US, based on which it derives PPP estimates for individual manufacturing industries for these East Asian countries with the US as the benchmark for ca. 1935. The estimated PPP for total manufacturing suggests that the relative level of the producer price in China, Japan and Korea was about half to two thirds of the prevailing market exchange rates, respectively. The estimated PPPs are used to calculate comparative output and labor productivity for individual industries of these countries for ca. 1935. It shows that the size of factory manufacturing in Japan was 12 percent of the US level and in China only about one percent of the US level. In terms of comparative labor productivity, measured as PPP$ per hour worked, Japanese and Korean manufacturing was 24 and 23 percent of the US level, whereas Chinese manufacturing was only 7 percent of the US level.

This paper examines the ‘exporting job’ hypothesis that expansion of overseas opera­tions of manufacturing multinational enterprises (MNEs) reduces home employment using data for Japanese MNEs. While the existing studies are mainly based on the industry level data, this paper presents the evidence using a newly constructed firm-level panel data set over the period 1991-2002. The evidence does not support the widely-held view in Japanese policy circles that that overseas operations of MNEs expand at the cost of home employment. On the contrary, there is some evidence that overseas operations may have helped to maintain the level of home employment.

Following the approach of Corrado, Hulten, and Sichel (2005, 2006), we measure intangible investment and examine the contribution of intangible capital to economic growth in Japan. We find that the ratio of intangible investment to GDP in Japan has risen during the past 20 years and now stands at 11.1 percent, which is lower than the ratio estimated for the U.S. in the early 2000s. The ratio of intangible to tangible investment in Japan is also lower than equivalent values estimated for the U.S. In addition, we find that, in stark contrast to the U.S., where intangible capital grew rapidly in the late 1990s, the growth rate of intangible capital in Japan declined from the late 1980s to the early 2000s. Our conclusions regarding intangible investment in Japan remain largely unchanged even if, using data with respect to firm-specific resources, we take on-the-job training into account.

A considerable share of R&D investment is due to multinational firms that simultaneously operate R&D bases at home and abroad. The existing empirical literature on R&D investment has however ignored the possibility that domestic and foreign R&D investments are simultaneously decided. In this paper, we draw on the technological opportunity, appropriability, and demand framework suggested by Cohen and Klepper (1996) to develop a simple model of foreign and domestic R&D investment. We test the model's predictions concerning the ratio of foreign to domestic R&D investment on a sample of 146 Japanese multinational firms' R&D investments in Japan and the United States in 1996. The empirical results confirm that the foreign R&D ratio depends on relative technological opportunities, relative demand conditions, and a proxy for firm-level R&D productivity. When differentiating between research and development activities, foreign research is driven by technological opportunity and foreign development by the demand factor, as expected.

In this paper, we investigate why information and communication technology (ICT) investment in Japan has stagnated since the 1990s. Given that a notable characteristic of Japan's economy is that small as well as older firms play a much greater role than in other economies, particularly that of the United States, and that previous studies on other countries suggest that larger and younger firms are more likely to adopt new ICT technologies, our analysis mainly focused on firms' size and age. As the first step of our investigation, using firm-level data, we examined whether larger and/or younger firms tend to have a higher ICT intensity. We found that larger firms indeed have a higher ICT intensity. In the case of firm age, there was no simple linear relationship between firm age and ICT intensity. As a next step, we estimated a Cobb-Douglas type production function and tested whether the ICT input coefficient differs across different firm-size groups and firm-age groups. We found that larger firms and younger firms tend to have a higher ICT input coefficient. The other factor that may be responsible for the differences in ICT intensity by firm size and firm age is the constraints on ICT input. To confirm this, we calculated the marginal product of ICT input by firm-size group and by firm-age group using the production function estimates. We found that smaller firms and younger firms tend to have a higher marginal product of ICT input. These findings suggest that smaller firms and younger firms face constraints that prevent them from increasing ICT input. Next, we examined impediments to the full use of ICT by Japanese firms based on our analysis as well as preceding studies by the Japanese government and other Japanese institutions. As factors which may result in smaller firms in Japan facing a higher price for ICT inputs, we pointed out two characteristics of the Japanese economy: the underdeveloped market for business process outsourcing (BPO) and the scarcity of ICT experts. Since access to efficient vendors of ICT services is a key factor for smaller firms' procuring ICT input at a reasonable price and ICT experts in Japan tend to prefer working in large firms, these two factors make ICT input more expensive for smaller firms. On the other hand, as constraints to increasing ICT input for smaller and/or younger firms, we pointed out liquidity constraints and insufficient ICT literacy. We also pointed out a number of other special factors which help to explain why not only the ICT intensity of small firms but also that of all firms in Japan is comparatively low.

Do high or low productivity firms self-select into locations characterized by high industry establishment density? On the one hand, productive firms may benefit more from the presence of specialized suppliers in agglomerated areas and they are also more likely to survive heightened product market competition. On the other hand, productive firms face greater risks of knowledge dissipation to collocated rival firms and contribute more than they receive in terms of knowledge spillovers. We examine unique data on the location of new plant establishments by multi-plant manufacturing firms in Japan, relating location decisions to firms’ prior productivity in existing plants. Estimating conditional logit models of location choice for close to 3,666 plant location decisions (2002-2008) covering more than 1,000 towns, wards, and cities, we find that the adverse selection effects of industry agglomeration dominate. These effects are substantially stronger if there is no association between establishment density and local competition: if incumbent plants are exporting or if the investing firm or new plant entry focuses on export markets. We conclude that sorting processes do occur, but that these can only be uncovered in a more fine-grained analysis that takes into account ex ante measures of firm heterogeneity and the nature of product markets. ispartof: NISTEP working paper vol:115 nrpages: 36 status: published

This article provides the first expenditure-based estimate of purchasing power parity (PPP) converters for 1934–1936 Japan, Korea, and Taiwan. We match all together 70–80 types of goods and services for private consumption, government expenditure and investment using three levels of weights derived from various expenditure surveys. We find that the 1934–1936 average prices of Korea for private consumption, investment, and government expenditure were about 0.86, 0.89, and 0.98 times that of Japan, respectively; and for Taiwan 0.84, 0.87, and 0.95, respectively. This gives the 1934–1936 Korea and Taiwan overall GDE average price levels of 0.87 and 0.86 that of Japan, respectively. Our new benchmark estimate is an improvement over existing converters based either on exchange rates or the 1990 backward projection method, which is embedded with index number biases. It provides a vital link for a long-term overview of structural change, ethnic income distribution, and the historical convergence for these three economies.

This paper compares the performance of foreign-owned and domestically-owned firms, using micro-data on Japanese firms in the manufacturing sector for the period 1994–2000. The overall comparison between foreign-owned and Japanese companies shows that foreign-owned companies enjoyed 5% higher TFP as well as higher earnings and returns on capital. They also displayed a higher capital–labor ratio and higher R&D intensity. Reflecting their higher TFP and labor-saving production patterns, foreign-owned companies showed higher labor productivity and wage rates as well. By estimating probit models, we found that foreign firms acquire Japanese firms with higher TFP levels and higher profit rates. In contrast, in-in M&As seem to have the characteristics of rescue missions. Small firms with a higher total liability/total asset ratio tend to be chosen as targets of in-in M&As. We also estimated the dynamic effects of M&As on target firms. The results indicate that out-in M&As improve target firms' TFP level and current profit/sales ratio. Compared with in-in M&As, out-in M&As bring a larger and quicker improvement in TFP and the profit rate but no increase in target firms' employment two years after the acquisition. J. Japanese Int. Economies 19 (2) (2005) 272–301.

In recent years, deregulation and a boom in global merger and acquisition activity has significantly increased inward foreign direct investment in Japan, although the level remains lower than in other developed countries. Using micro data on Japanese manufacturing firms, this article investigates whether foreign-owned firms are more productive than domestically owned firms. The article also addresses the question of whether firms targeted in mergers and acquisitions improve their business efficiency after the transaction has taken place. Results show that foreign-owned firms have 10% higher total factor productivity, a higher R&D intensity and higher growth rates of tangible assets and wages. They also show that, after a merger or acquisition, out–in targeted firms increase their productivity and sales whereas in–in targeted firms and other independent firms fail to do so. These results offer policy recommendations that Japan should create conditions to further increase inward foreign direct inve...

This paper is consideration of strategic aspects of national saving policies in a game theory setting. In pure exchange economy involving two countries, each government chooses a future time path of the national consumption-wealth ratio in order to maximize its citizens' utility. When private time preference rates of two countries are different, the government of the country with the lower time preference rate has an incentive to slow down the national asset accumulation. The government of the higher time preference rate country has an incentive to slow down the national asset reduction. In Cournot-Nash equilibria of this dynamic game, international capital flows are depressed as compared with competitive equilibria, which are Pareto-optimal. It is shown that the governments achieve the Cournot-Nash equilibrium path of consumption-wealth ratio using a set of taxes and subsidies. A large country intervenes into the market more than a small one. In this sense, a large country exploits a small one. Dynamics of world interest rates are also analyzed.

1. Overview of the JIP Database To measure total factor productivity (TFP) of the Japanese economy by industry, we created a database that we are calling the Japan Industry Productivity (JIP) database. The database contains annual information on 84 sectors, including 49 non-manufacturing sectors, from 1970 to 1998. It includes detailed information on factor inputs, annual input-output tables, relatively reliable deflators, and some additional data, such as R&D stock, and Japan's trade data by trade partner, etc., at a detailed sectoral level. 2. Estimate of TFP Growth of the Japanese Economy Labor quality is not taken into consideration in estimating TFP growth rates in many previous studies. When we estimate the TFP growth rate of the Japanese economy for the period of 1970-98 by taking it into consideration, we find that the TFP growth rate in consideration of labor quality was lower than that in no consideration of it. This implies that accumulation of human capital through school education and aging after 1970 contributed to improvements in labor productivity.When we take capacity utilization into consideration, we find that we tend to underestimate TFP for the periods of recession. Still, we can say that the TFP growth rates in the 1990s were lower than those before. 3. Estimate of TFP Growth By Sector When we compare TFP growth rates in service sectors and non-service ones, we find that those in non-service sectors were relatively high before the 1990s, while TFP growth rates in service sectors were relatively low before the 1990s. However, a new trend can be found in the 1990s. It should be noted that TFP growth rates in some of service sectors where deregulation was accelerated in the 1990s were getting higher. 4. Estimate of Software Investment In National Accounts of Japan, only order-made software investment is estimated. We estimate in-house software and general application software as well as order-made software. Our estimation suggests that Japan's official statistics underestimate software investment. The huge gap in software investment between the U.S. and Japanese official statistics vanishes when we take account of in-house software and general application software.

Prime Minister Shinzo Abe's economic policies--dubbed Abenomics--have been successful on some but not all fronts. The Japanese government must still pursue policies to increase economic growth. This PIIE Briefing, released on the heels of Prime Minister Abe's election victory in December, calls on Japan, for example, to be flexible in the negotiations for a Trans-Pacific Partnership (TPP) trade deal and to take steps to achieve fiscal sustainability over the medium and long term. The papers in this volume were presented at the first seminar of the High-Level Working Group on Japan-US Common Economic Challenges on June 3, 2014, and it includes an assessment of Abenomics by PIIE president Adam S. Posen. The initiative, launched by the Peterson Institute for International Economics, the Sasakawa Peace Foundation USA, and the Sasakawa Peace Foundation, brings together distinguished economists and former government officials from both countries, providing a forum to illuminate important US-Japan issues and produce policy advice and research ideas. The second session of this Working Group was held on December 18-19, 2014 in Tokyo.