PRODUCTIVITY AND BUSINESS CYCLES IN JAPAN: EVIDENCE FROM JAPANESE INDUSTRY DATA*

Constructing a database of 37 industries, we examine whether the measured productivity in Japan is pro‐cyclical and investigate the sources of this pro‐cyclicality by using the production function approach employed by Hall (1990) and Basu and Fernald (1995). The aggregate Solow residual displays pro‐cyclicality. A large number of industries show constant returns to scale. No significant evidence for the presence of thick‐market externalities is found. Our results also hold when we consider labour hoarding, part‐time employment, and the adjustment cost of investment. The results indicate that policies to revitalize the Japanese economy should concentrate on promoting productivity growth.     

GROWTH AND CYCLES, IN THE MODE OF MARX AND SCHUMPETER

I propose a theory of endogenous growth and cycles under competitive conditions. Firms choose how many workers to hire, how much to invest, and which technologies to use. New capacity, embodying labor-saving technologies, is costlier than old one but allows for a lower wage bill. The interaction between labor-saving innovations and changes in the relative price of labor is the source of growth cycles.     

INTANGIBLE INVESTMENT IN JAPAN: MEASUREMENT AND CONTRIBUTION TO ECONOMIC GROWTH

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.     

GROWTH,INTER‐INDUSTRY AND INTRA‐INDUSTRY COMPETITION AND WELFARE*

In this paper we introduce strategic interaction between firms in an R&D growth model which captures both the intra‐industry competition between firms operating within an industry and the inter‐industry competition between firms in different industries. We show that the more substitutable the goods produced within each industry (across industries) are, that is, the more intense the intra‐industry (inter‐industry) competition, the higher is the growth rate. In the comparison between social optimum and a decentralized economy, it is shown that the market outcome is characterized by inefficiently high entry of firms within each industry and insufficient productivity growth.     

THE MECHANICS OF ECONOMIC GROWTH THROUGH CAPITAL ACCUMULATION AND TECHNOLOGICAL PROGRESS*

This study develops a model wherein capital is used in final goods production and research and development (R&D) activities. This arrangement generates changes of the equilibrium capital allocation corresponding to capital endowment, which engenders a regime change from capital based growth with decreasing returns to R&D based perpetual growth. These two growth phases account for the polarization of economies. The model also engenders multiple equilibria on capital allocation—which emerge during the middle stages of capital accumulation—accounting for leapfrogging and the instability of the economic growth of developing countries with medium capital accumulation.     

WHAT CAUSED FIXED INVESTMENT TO STAGNATE DURING THE 1990S IN JAPAN? EVIDENCE FROM PANEL DATA OF LISTED COMPANIES*

Taking into account considerable changes in the corporate finance behaviour of listed Japanese companies during the 1990s, this paper empirically investigates the causes of the stagnation of the listed companies’ fixed investment during the 1990s, using panel data from the companies’ financial statements. Our findings include the following: (i) while positive cash flow sensitivity was detected for the companies listed during the 1990s, it was not necessarily a consequence of the binding of liquidity constraints; (ii) declines in Tobin's q explain decreases in fixed investment throughout the 1990s; and (iii) the holding of liquid assets acted as a buffer against liquidity shocks.     

INEQUALITY AND POVERTY IN JAPAN*

This paper presents a brief survey of inequality and poverty in Japan. It shows empirical evidence on the extent of both inequality in income distribution and of poverty rates; the paper discusses the cause of increases in both these variables, and the implication of such trends. The paper goes on to argue the difference between inequality of opportunity and inequality of outcome and shows some related empirical evidence. Finally, the paper investigates the relationship between economic efficiency and equity, supposed to be in a trade‐off relationship, and presents my personal view of that relationship and policy recommendations.     

INDUSTRY‐LEVEL PRODUCTIVITY MEASUREMENT AND THE 2008 SYSTEM OF NATIONAL ACCOUNTS

The 2008 System of National Accounts recognizes capital services as the conceptually correct way to measure the input of capital into production. This allows setting up an integrated system of industry‐level and aggregate productivity accounts that are consistent with the 2008 SNA. The paper discusses the new aspects in the 2008 SNA and sets out such an integrated system, based on Jorgenson's aggregate production possibility frontier and gross output‐based industry productivity measures. Recent results for industry productivity measures for the United States complete the picture.     

MEASURING THE COST OF LIVING INDEX,OUTPUT GROWTH,AND PRODUCTIVITY GROWTH IN THE RETAIL INDUSTRY: AN APPLICATION TO JAPAN

This study applies a framework that enables one to estimate quality, exact cost of living (COL) indexes, and output growth for the retail industry. The framework is based on discrete choice theory, in which product differentiation and quality change are explicitly modeled. For illustration, the framework is then applied to the Japanese retail industry. The estimated quality index shows that, between 1985 and 1999, Japanese retail services quality improved, and the estimated COL index declined monotonically. Furthermore, the results from growth accounting suggest that ignoring both differentiation in the retail services market and changes in service quality may downwardly bias estimated output and productivity growth.     

生产率对中国经济增长的贡献:新的估计

在过去的二十年中,中国经济令人瞩目的增长已经吸引了许多的注意,并由此引发了这一领域内大量文献的出现。这些文献关注的一个问题是中国经济增长中生产率的作用。本文希望通过重新考察关于中国经济增长中生产率作用的争论,对生产率增长提供了一个最新的估计,并由此有助于理解近期的中国经济增长。本文的目的是提出并应用一种增长核算技术,来评估中国经济增长绩效,尤其是技术进步在中国经济增长中的作用。而关于后者的发现可能会对中国未来经济增长的持续性有着重要的政策涵义。     

GROWTH, R&D AND WELFARE: THE ROLE OF PUBLIC POLICY

This paper analyzes the normative side of an R&D growth model in which market structure and growth are jointly determined in the equilibrium of a one‐sector economy under monopolistic competition. We find that a distortion in the allocation of R&D, namely the presence of technological spillovers between firms, generates two market failures: insufficient growth and excessive entry of firms. We show that this result is driven by the interplay between market structure and growth. A simple tax/subsidy scheme to support the efficient solution is proposed.     

CROSS-COUNTRY EVIDENCE ON OUTPUT GROWTH VOLATILITY: NONSTATIONARY VARIANCE AND GARCH MODELS

This paper revisits the issue of conditional volatility in real gross domestic product (GDP) growth rates for Canada, Germany, Italy, Japan, the United Kingdom, and the United States. Previous studies find high persistence in the volatility. This paper shows that this finding largely reflects a nonstationary variance. Output growth in the six countries became noticeably less volatile over the past few decades. In this paper, we employ the modified iterated cumulative sum of squares (ICSS) algorithm to detect structural change in the variance of output growth. One structural break exists in each of the six countries after identifying outliers and mean shifts in the growth rates. We then use generalized autoregressive conditional heteroskedasticity (GARCH) specifications, modeling output growth and its volatility with and without the break in volatility. The evidence shows that the time-varying variance falls sharply in Canada and Japan, and disappears entirely in Germany, Italy, the United Kingdom and the United States, once we incorporate the break in the variance equation of output for the six countries. That is, the integrated GARCH (IGARCH) effect proves spurious and the GARCH model demonstrates misspecification, if researchers neglect a nonstationary variance. Moreover, we also consider the possible effects of our more correct measure of output volatility on output growth as well as the reverse effect of output growth on its volatility. The conditional standard deviation possesses no statistical significance in all countries, except a significant negative effect in Japan. The lagged growth rate of output produces significant negative and positive effects on the conditional variances in Germany and Japan, respectively. No significant effects exist in Canada, Italy, the United Kingdom, and the United States.     

GROWTH AND BUBBLES WITH CONSUMPTION EXTERNALITIES*

This paper explores the role of consumption externalities in an overlapping generations economy with capital accumulation. If consumers in each generation are concerned with other agents’ consumption behaviours, there exist intergenerational as well as intragenerational consumption externalities. It is the presence of intergenreational consumption externalities that may produce fundamental effects both on equilibrium dynamics and on steady‐state characterization of the economy. This paper demonstrates this fact in the context of a simple model of endogenously growing, overlapping‐generations economy with or without asset bubbles.     

PRODUCTIVITY GROWTH AND THE PHILLIPS CURVE: A REASSESSMENT OF THE US EXPERIENCE

In this paper, we analyse a new Phillips curve (NPC) model and demonstrate that (i) frictional growth, i.e., the interplay of wage staggering and money growth, generates a non‐vertical NPC in the long run and (ii) the Phillips curve (PC) shifts with productivity growth. On this basis we estimate a dynamic system of macro‐labour equations to evaluate the slope of the PC and explain the evolution of inflation and unemployment in the USA from 1970 to 2006. Because our empirical methodology relies heavily on impulse response functions, it represents a synthesis of the traditional structural modelling and (structural) vector autoregressions. We find that the PC is downward‐sloping with a slope of ?3.58 in the long run. Furthermore, during the stagflating 1970s, the productivity slowdown contributed substantially to the increases in both unemployment and inflation, whereas the monetary expansion was quite ineffective and led mainly to higher inflation. Finally, the monetary expansion and productivity speedup of the roaring 1990s were both responsible for the significant lowering of the unemployment rate.     

Further evidence regarding nonlinear trend reversion of real GDP and the CPI

This paper examines whether the CPI and real GDP for the US exhibit nonlinear reversion to trend as recently concluded by Beechey and Österholm [Beechey, M. and Österholm, P., 2008. Revisiting the uncertain unit root in GDP and CPI: testing for nonlinear trend reversion. Economics Letters 100, 221-223]. The wild bootstrap is used to correct for non-normality and heteroscedasticity in a nonlinear unit root test. The use of ‘wild bootstrapped’ critical values affects test conclusions in some cases. Results also are sensitive to the sample period examined.     

International macroeconomic dynamics: A factor vector autoregressive approach

In this paper international comovements among a set of key real and nominal macroeconomic variables in the US, UK, Canada, Japan and the Euro area have been investigated for the 1980–2005 period, using a factor vector autoregressive approach. We present evidence that comovements in macroeconomic variables do not concern only real activity, but are an important feature also of stock market returns, inflation rates, interest rates and, to a smaller extent, monetary aggregates. Both common sources of shocks and similar transmission mechanisms explain international comovements, with the only exception of Japan, where the idiosyncratic features seem to dominate. Finally, concerning the origin of global shocks, evidence of both global supply-side and demand-side disturbances is found.     

POST-REFORM PRODUCTIVITY PERFORMANCE AND SOURCES OF GROWTH IN CHINESE INDUSTRY: 1980–85

This paper examines the productivity growth and its sources in 39 Chinese industries in the post-reform period 1980–85. We use both the gross-output and value-added models to isolate the contributions of labor, capital, materials and technical efficiency to growth in industrial output. Using new data from the National Industrial Census of China (1988) for large and medium-size enterprises, we find that Chinese industries, in particular, those in the manufacturing experienced sharp increases in total factor productivity growth in the 1984–85 period as compared to the 1980–84 period. Moreover, collective and private enterprises show higher output and total factor productivity gains than do state enterprises. Our regression results show that total factor productivity gains are closely tied to increases in retained profits and the proportion of total employees that are technical workers. However, labor bonuses have a negative effect on total factor productivity growth.     

OUTWARD INVESTMENT TO CHINA AND LOCAL INNOVATION OF TAIWANESE MANUFACTURING FIRMS

Does outward investment induce more domestic innovation or simply move local innovative efforts to foreign plants? This question is topical and relevant to Taiwan in view of its large share of outward investment concentrated in China and the special political relationship between the two sides of the Taiwan Strait. The purpose of this paper is to examine the effect of outward investment in China on domestic innovative activity in Taiwan. Overall, this study finds that a positive relationship exists between outward investment and innovation in terms of R&D intensity and patents, implying that investing in China is part of a global resource allocation strategy of Taiwanese multinational enterprises to allocate production in China and pay more attention to innovative activity in their domestic plants. Moreover, the deregulation of the policy regarding investing in China in 2001 has induced an upsurge in investment in China, although it does not seem to have brought about an outflow of technologies.