| Abstract: | 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. |
