Reallocation and productivity growth in Japan: revisiting the lost decade of the 1990s |
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Authors: | Naomi N Griffin Kazuhiko Odaki |
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Institution: | (1) Congressional Budget Office, Washington, DC, USA;(2) Ministry of Economy, Trade and Industry, Tokyo, Japan |
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Abstract: | Hayashi and Prescott (Rev Econ Dyn 5(1):206–235, 2002) argue that the ‘lost decade’ of the 1990s in Japan is explained by
the slowdown in exogenous TFP growth rates. At the same time, other research suggests that Japanese banks’ support for inefficient
firms prolonged recessions by reducing productivity through misallocation of resources. Using the data on large manufacturing
firms between 1969 and 1996, the paper attempts to disentangle the factors behind the slowdown in productivity growth during
the 1990s. The main results show that there was a significant drop in within-firm productivity, the component that is not
affected by reallocation of input and output shares across firms over time, during the 1990s. Although we find that misallocation
among large continuing firms represents a substantial drag to overall TFP growth for these firms throughout the sample period,
the negative impact of misallocation was least visible during the 1990s. The significant reduction in within-firm productivity
growth suggests that, as the Japanese economy has matured, a policy which fosters technological innovations via greater competition,
R&D, and fast technological adoption may have become increasingly important in promoting economic growth.
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Keywords: | Productivity growth Reallocation Japan |
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