Industrial Development, Firm Dynamics and Patterns of Productivity Growth: The Case of the Cotton-spinning Industry in Prewar Japan, 1894-1924

This paper explores the relationship between patterns of productivity growth and the development stage of an industry, using firm-level data on the cotton-spinning industry in Japan in the late-nineteenth century. It is found that patterns of productivity growth depend on the development stage of the industry. In the earlier stage of industrial development, the productivity growth of each firm, namely the within effect, was the sole major source of aggregate productivity growth. On the other hand, once the industry had matured, resource reallocation across firms became a major source of aggregate productivity growth, along with the within effect. This relationship between patterns of productivity growth and the development stage of an industry is considered to reflect the stage-dependent patterns of innovation and competition.