Empirical Analysis of IT Innovation: Has IT Changed Japan's Long-Term Economic Performance?

* This publication is in Japanese. An English translation is not available.

An examination of the impact of IT innovation on the Japanese economy, based on the quantitative analysis from the perspectives of macro economics and at the firm level

An important report on the medium-term economic growth prospects and international competitiveness of industrialized countries was presented to the OECD ministerial conference of 2001. This report, entitled "The New Economy: Beyond the Hype," sorted the OECD members into "winners" and "losers" based on their economic performance during the 1990s, and analyzed the various factors behind their position. Japan was classified as one of "losers," together with such countries as France and Germany. What the "losers" have in common is a rigid economic system. The 1990s saw an IT revolution brought about by rapid advances in Internet and semiconductor technologies. "Winners" such as the United States were able to take full advantage of these advances thanks to their flexible economic structures. But can we really say the report presented a fair judgment?

The year 2001 was also marked by rampant pessimism at home over the Japanese economy. Newspapers were peppered with such headlines as "The Lost Decade," "IMD International Competitiveness Ranking Slumps," "The Hollowing Out of Industry Continues," and "The Rise of the Chinese Economy and the Threat it Poses." From around 2003, this pessimism receded in line with economic recovery, but the long-term economic prospects were still seen as grim. Has the Japanese economy, which in the latter half of the 1980s was touted as a global model, really fallen into decline?

The 1990s, coming on the heels of the collapse of the bubble economy, have been dubbed the "lost decade," but Japan was not sitting idly during this period. The 1990s was also a decade of 'IT revolution', which was touted as a fundamental technological leap on a par with the Industrial Revolution. The appearance of the Internet and the spread of computers as consumer goods greatly changed people's lives and brought about major economic and social changes. On the other hand, it is also true that IT revolution and the digital revolution pose major challenges to the Japanese economic system, which is characterized by long term and stable relationships between employer and employees, and between suppliers and customers.

In this book, I discuss the changes brought about in the Japanese economy by the IT revolution and the prospects for its performance over the long term. The rapid progress of telecommunications technology and the emergence of new business models that apply this technology are defined using the broad concept of "IT innovation"; I discuss in detail the economic impact of IT innovation, focusing on its relationship to productivity. In addition, by comparing the Japanese economy with the situation in the U.S., which boomed thanks to the "New Economy," I examine factors behind slowdown of economic growth rate of Japan since the 1990s. Furthermore, by expanding the analysis to the internal structures of economic systems such as firm's organization and inter-firm transactions, I aim to clarify where the problems lie and link this to prospects for the future.

The key purpose of this book is to discuss these problems based on a foundation of objective facts gathered through empirical analysis of a wide variety of statistical data, as well as appropriate econometric methods. With respect to microeconomic matters such as structural changes in internal corporate structures, and transactions among companies, there are many limitations to the data. I attempted to use the best available data and the latest econometric methods to capture the actual state of the Japanese economy from both the macroeconomic and microeconomic viewpoints.

MOTOHASHI Kazuyuki