East Asian Industrial Productivity

Given the demographic headwind of a declining population, raising Japan's potential growth rate requires faster total factor productivity (TFP) growth and a more efficient use of factors of production (capital, intangible assets, labor, and land). In addition, since the 1980s, Japan's economy has suffered from an almost constant lack of effective demand, and in order to create sufficient demand and eliminate the negative output gap, it is essential to increase investment by raising the return on capital, boost private consumption through an increase in real wages, and raise the international competitiveness of firms.

Against this background, the current project, in cooperation with Hitotsubashi University, has been working on updating and expanding the Japan Industrial Productivity (JIP) Database—a database covering the entire Japanese economy that provides data on factor inputs, factor prices, and TFP by detailed industry from 1955 until the most recent year, and which forms the basis for analyses of Japan's economic growth from the supply side. Based on these analyses, we make various proposals on how to raise Japan's potential growth rate and effective demand.

Moreover, utilizing microdata from government statistics, we examine the causes of the decline in Japan's productivity growth as well as the sluggish investment in tangible and intangible assets. In this analysis, we focus in particular on the declining international competitiveness of Japanese companies, the decline in corporate earning power through falling markup rates, the substantial productivity gap between large and small firms, which is more pronounced in Japan than in comparable countries abroad, the inefficiency of resource allocation within and across firms, problems in the lifetime employment system, and the unravelling of interfirm relationships.

Furthermore, for China, whose era of high-speed growth is coming to an end, we are constructing the China Industrial Productivity (CIP) Database, which is similar to the JIP Database for Japan, and which we use for various analyses. We are also updating and expanding the East Asian Listed Companies (EALC) Database, which measures the productivity and international competitiveness of East Asian countries at the firm level. In addition, by collaborating with the World KLEMS project, the EU KLEMS project, the Asia KLEMS project, the Organisation for Economic Co-operation and Development (OECD), etc., we are making it possible to compare trends in productivity and factor inputs by industry in Japan and China with other countries. Apart from this, though collaboration with other projects in the "Raising Industrial and Firm Productivity" program, we are working on prefecture-level productivity analyses using the Regional-Level Japan Industrial Productivity (R-JIP) Database and on analyses of the economic effects of investment in intangibles.

April 24, 2017 - March 31, 2019