Explaining Japan's Unproductive Two Decades

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.     

The Tyranny of Concepts: CUDIE (Cumulated, Depreciated, Investment Effort) Is Not Capital

The cost of public investment is not the increment to the value ofpublic capital. Unlike with private investors, there is no plausiblebehavioral model in which every dollar that the public sectorspends as ``investment' creates economically valuable ``capital.'While this simple analytic point is obvious, it has so far beenuniformly ignored in the empirical literature on economic growth,which uses—at best—cumulated, depreciated, investmenteffort (CUDIE) as a proxy for capital stocks. However, particularlyfor developing countries the difference between investment costand capital value is of first-order empirical importance: governmentinvestment is half of more of total investment, and calculationspresented here suggest that in many countries government investmentspending has created little useful capital. This has implicationsin three broad areas. First, none of the existing empirical estimatesof the impact of public spending has identified the productivityof public capital. Even where public capital has a potentiallylarge contribution to production, public-investment spendingmay have had a low impact. Second, it implies that all estimatesof total factor productivity in developing countries are deeplysuspect as there is no way to empirically distinguish betweenlow growth because of investments that create no factors andlow growth due to slow productivity growth. Third, multivariateregressions to date have not adequately controlled for capitalstock growth, which leads to erroneous interpretations of regressioncoefficients.     

A century of economic growth in Latin America

This paper makes a contribution to the study of economic growth in developing countries by analyzing the six largest Latin American economies over 105 years within a two-equation framework. Confirming previous findings, physical and human capital prove to be key determinants of GDP per head growth. However, a more controversial result is an overall negative conditional correlation between trade openness and GDP per head growth — though openness has a positive link via investment. The evidence also shows that macroeconomic instability has been a drag on long-term growth in the region.     

Sources of the German Productivity Demise: Tracing the Effects of Industry-Level Information and Communication Technology Investment

Abstract. While the United States experienced two successive labor productivity surges in 1995 and 2000, Germany's productivity declined dramatically during the same period. We examine the sources of Germany's productivity demise using the ifo industry growth accounting database that provides detailed industry-level investment information. While much attention has focused on the reduction in German labor hours, our data show that information and communication technology (ICT) investment in Germany was deeply lacking in the mid-1990s as compared with the United States. The transition to the new economy mitigated the German productivity slowdown, but did not reverse it. After 2000, we find that a recovery in Non-ICT investment was offset by a widespread collapse in German total factor productivity. Over half of the German industries (accounting for almost 50 per cent of German output) experienced negative total factor productivity growth. This second major difference between the United States and German industry performance explains Germany's secular departure from the technological frontier.     

Intangible Capital and Labor Productivity Growth: Panel Evidence for the EU from 1998–2005

Using new international comparable data on intangible capital investment by business within a panel analysis between 1998 and 2005 in an EU country sample, a positive and significant relationship between intangible capital investment and labor productivity growth is detected. This relationship proves to be robust to a range of alterations. The empirical analysis confirms previous findings that the inclusion of business intangible capital investment in the asset boundary of the national accounting framework increases the rate of change of output per hour worked more rapidly. In addition, intangible capital is able to explain a significant portion of the unexplained international variance in labor productivity growth, and becomes a dominant source of growth.     

Structural Change,Expanding Informality and Labor Productivity Growth in Russia

Strong growth, intensive structural change, and expanding informality have characterized many developing and emerging economies in recent decades. Yet most empirical investigations into the relationship between structural change and productivity growth overlook informality. This paper includes the informal sector in an analysis of the effects of structural changes in the Russian economy on aggregate labor productivity growth. Using a newly developed dataset for 34 industries covering the period 1995–2012 and applying three alternative approaches, aggregate labor productivity growth is decomposed into intra-industry and inter-industry contributions. All three approaches show that the overall contribution of structural change is growth enhancing, significant, and decreasing over time. Labor reallocation from the formal sector to the informal sector tends to reduce growth through the extension of informal activities with low productivity levels. Sectoral labor reallocation effects are found to be highly sensitive to the methods applied.     

Information Technology and the World Economy*

This paper addresses the impact of investment in information technology (IT) on the recent resurgence of world economic growth. We describe the growth of the world economy, seven regions and 14 major economies during the period 1989–2003. We allocate the growth of world output between input growth and productivity and find, surprisingly, that input growth greatly predominates! The contributions of IT investment have increased in all regions, but especially in industrialized economies and Developing Asia. Differences in per capita output are explained by differences in per capita input, rather than by variations in productivity.     

Great Depressions of the 20th Century

The papers in this issue study nine depressions—both from the interwar period in Europe and North America and from more recent times in Japan and Latin America—using a common framework. All of the papers rely on growth accounting to decompose changes in output into the portions due to changes in factor inputs and the portion due to the changes in efficiency with which these factors are used. All of the papers employ simple applied dynamic general equilibrium models. Collectively, these papers indicate that government policies that affect productivity and hours per working-age person are the crucial determinants of the great depressions of the 20th century. Journal of Economic Literature Classification Numbers: E32, N10, O40.     

Export Market Dynamics and Plant‐Level Productivity: Impact of Tariff Reductions and Exchange‐Rate Cycles*

In this paper, we examine how changes in tariff rates and industry‐specific real exchange rates affect the entry/exit process to export markets and productivity growth. Using the experience of the Canadian manufacturing sector over three decades, we find that firms in export markets enjoy faster productivity growth than non‐participants. The size of the growth advantage depends on whether real exchange rates are increasing or decreasing. The increase in the value of the Canadian dollar during the post‐2000 period almost completely offset the productivity growth advantages enjoyed by new exporters during this period.     

Sources of TFP growth in a framework of convergence-evidence from Greece

The main hypothesis tested in the paper is whether technology is a conduit of productivity growth for a country that falls behind the frontier. Although the current analysis focuses on a country growth narrative, the evidence represents a pair of countries (i.e. Greece and Germany) that admittedly form the periphery and the core of Europe. The first lesson taken from the study is that for more than two decades the speed of productivity adjustment was rather low in Greece, underlying a number of unobserved rigidities that exist both at the industry and the institutional level. Even though the speed of technology transfer is low, the adoption of foreign technology remains an important source of productivity growth. Other key findings are that productivity gains from trade exist but their full realization requires a substantial time lag. Additionally, the degree of trade openness improves absorptive capacity, confirming the dual role of trade as recently stressed in the productivity literature. R&D activity is another productivity growth contributor but only through higher rates of innovation.     

ESTIMATES OF INTANGIBLE INVESTMENT BY INDUSTRY AND PRODUCTIVITY GROWTH IN JAPAN

In estimating intangible investment in Japan at the industry level, we find a high intangible investment/gross value added ratio in the information technology (IT) sector and negative growth rates in intangible capital in 13 industries over the decade from 2000. When we examine the impacts of intangible investment on total factor productivity growth, we find a significant and positive effect on total factor productivity growth in the market economy. In a revised estimation that considers intertemporal knowledge spillovers, the estimated rate of return on intangibles in the IT sector is quite high after the IT revolution. The results imply that intangible assets have been underinvested in the IT sector.     

The Impact Of Computer Prices On International Comparisons Of Labour Productivity

This paper analyses the international comparability of methods used to convert the value added of the office and computing machinery sector (OCM) into constant prices for nine OECD countries. It concludes that the variations which exist in the price indexes are largely due to differences in the methods countries use to capture changes in the quality of an industry's output over time. The paper evaluates the impact of these different OCM price indexes on the growth rate of labour productivity during the 1980s by conducting a sensitivity test where the US OCM index is substituted for each of the individual country indexes. This experiment causes the OCM labour productivity growth rate to change by over a factor of ten for several countries. This result suggests that international comparisons of labour productivity should not be made for the OCM sector using the official data, and that labour productivity comparisons of sectors OCM belongs to—non-electrical machinery and fabricated metal products and machinery—should be conducted cautiously, if at all.     

Schooling,educational achievement,and the Latin American growth puzzle

Latin American economic development has been perceived as a puzzle. The region has trailed most other world regions over the past half century despite relatively high initial development and school attainment levels. This puzzle, however, can be resolved by considering educational achievement, a direct measure of human capital. We introduce a new, more inclusive achievement measure that comes from splicing regional achievement tests into worldwide tests. In growth regressions, the positive growth effect of educational achievement fully accounts for the poor growth performance of Latin American countries. These results are confirmed in a number of instrumental-variable specifications that exploit plausibly exogenous achievement variation stemming from historical and institutional determinants of educational achievement. Finally, a development accounting analysis finds that, once educational achievement is included, human capital can account for between half and two thirds of the income differences between Latin America and the rest of the world.     

Total factor productivity convergence in German states since reunification: Evidence and explanations

A quarter-century after reunification, labor productivity in the states of eastern Germany continues to lag systematically behind the West. Persistent gaps in total factor productivity (TFP) are the proximate cause; conventional and capital-free measurements confirm a sharp slowdown in TFP growth after 1995. Strikingly, eastern capital intensity, especially in industry, exceeds values in the West, casting doubt on the embodied technology hypothesis. TFP growth is negatively associated with rates of investment expenditures. The stubborn East-West TFP gap is best explained by low concentration of managers, low startup intensity and the distribution of firm size in the East rather than R&D activities.     

Productivity growth and catching up: a technology gap explanation

This paper seeks to explain why some countries have managed to catch up in terms of labor productivity over the period 1993–2007 in 76 countries. By integrating the technology gap research within the standard growth-accounting approach, we introduce a methodology which allows us to split total factor productivity (TFP) change into two components: conditional technical inefficiency and the magnitude of the technology gap. We find that labor productivity growth depends both on investment in fixed capital and TFP. Fast emerging economies exhibit patterns of growth based in particular on the reduction of the technology gap, confirming the role of investment in technological capabilities to spur productivity catch-up. Looking at change in the distribution of labor productivity, emerging countries managed to shift from low productivity toward a medium level of productivity thanks to technology accumulation. Less advanced countries cannot rely only on technology diffusion and learning by doing, policies for technological capabilities accumulation are necessary.     

Mind the Gap! International Comparisons of Productivity in Services and Goods Production

Abstract. In this paper, we make a comparison of industry output, inputs and productivity growth and levels between seven advanced economies (Australia, Canada, France, Germany, the Netherlands, United Kingdom and United States). Our industry-level growth accounts make use of input data on labour quantity (hours) and composition (schooling levels), and distinguish between six different types of capital assets (including three information and communication technology (ICT) assets). The comparisons of levels rely on industry-specific purchasing power parities (PPPs) for output and inputs, within a consistent input–output framework for the year 1997. Our results show that differences in productivity growth and levels can be mainly traced to market services, not to goods-producing industries. Part of the strong productivity growth in market services in Anglo-Saxon countries, such as in Australia and Canada, may be related to relatively low productivity levels compared with the United States. In contrast, services productivity levels in continental European countries were on par with the United States in 1997, but growth in Europe was much weaker since then. In terms of factor input use, the United States is very different from all other countries, mostly because of the more intensive use of ICT capital in the United States.     

Has Switzerland Really Been Marked by Low Productivity Growth? Hours Worked and Labor Productivity in Switzerland in a Long‐run Perspective

This paper shows that previous work has understated Switzerland's performance in terms of labor productivity growth. First, available data on hours worked are incoherent and overestimate growth in hours worked. The paper therefore establishes a consistent series of total hours worked and its components covering 1950–2010, showing that Swiss labor inputs actually were stable from 1964 to 2007. Second, long‐term improvements in Switzerland's Terms of Trade indicate that quality improvements in Swiss exports might not be fully mirrored in growth of GDP and, hence, productivity growth.     

环境管制与工业生产率增长：东部地区的实证研究

本文运用曼奎斯特—卢恩伯格生产率指数,测度了2000-2007年东部工业在考虑SO2和不考虑SO2排放情况下的效率、生产率增长及其成份的增长率,并且估计出了环境管制给企业带来的成本。结果发现：上海和广东处于生产前沿;考虑SO2排放后,生产率增长率下降;天津的生产率增长、技术效率增长率和技术进步率都最高,北京环境污染管制的成本最高;FD I投入、国有企业比重、资本劳动比、废气治理投资和环境管制成本对生产率增长都有显著影响。     

VENTURE CAPITAL AND INNOVATION: WHICH IS FIRST?

Policy‐makers typically interpret positive relations between venture capital (VC) investments and innovations as evidence that VC investments stimulate innovation (VC‐first hypothesis). This interpretation is, however, one‐sided because there may be a reverse causality that innovations induce VC investments (innovation‐first hypothesis): an arrival of new technology increases demand for VC. We analyze this causality issue of VC and innovation in the US manufacturing industry using both total factor productivity growth and patent counts as measures of innovation. We find that, consistent with the innovation‐first hypothesis, total factor productivity growth is often positively and significantly related with future VC investment. We find little evidence that supports the VC‐first hypothesis.     

FDI and productivity growth: the role of inter‐industry linkages

Abstract There is a large literature on the effects of foreign direct investment (FDI) on productivity through inter‐industry economic linkages. This paper contributes to the literature by focusing on the developed economy of Canada. It finds that FDI generates strong effects on total factor productivity (TFP) growth through both forward and backward inter‐industry linkages, and increase in an industry's absorptive capacity raises the effects of FDI on TFP growth through forward inter‐industry linkages. For R&D intensive industries, the effects of FDI on TFP growth through inter‐industry linkages are small, but imports turn out to be an important source for TFP growth.