Business Dynamism and Productivity Growth under Abenomics: An Empirical Analysis Based on Micro Data from Japan's Economic Census for Business Activity

What was the state of business dynamism in the first half of Abenomics, when productivity increased relatively well? This paper analyzes this issue by conducting a productivity dynamics analysis of labor productivity and TFP using questionnaire information from the Economic Census for Business Activity for 2011 and 2015. In addition, we investigated what category of firm was the main drivers of productivity growth. The main source of productivity growth during this period was productivity growth within firms (within effect) for labor productivity, but for TFP growth, it was not the within effect but the reallocation effect (the covariance effect due to the increase in the market share by firms with higher productivity growth rates, the between effect in which firms with higher productivity increased their market share, and the entry of new firms with higher productivity). Although the exit effect was negative because firms with high productivity exited the market, it can be said that the driving force behind productivity growth during this period was the reallocation of resources across firms. The reallocation effect was particularly prevalent in the larger group of firms and in the non-manufacturing sector rather than in the manufacturing sector. The observations on the relationship between the firm size, firm age and productivity growth within firms showed that TFP growth rate was highest for the second-largest group of firms in the non-manufacturing sector, which were 20-30 years old, and highest for the smallest group of firms in the manufacturing sector, which were less than 10 years old. On the other hand, the productivity gap between firms widened, and market concentration (as measured by the Herfindahl-Hirschman Index, HHI) fell, while the average mark-up ratio (sales divided by total costs) rose. The increase in mark-up was not due to increased market share by firms with high mark-up rates. The increases occurred mainly within individual firms, and regardless of firm size or age. The mark-up rate increased especially in the manufacturing sector with a high ratio of exports, which may be due to the depreciation of the yen.