Revisiting Productivity Differences and Firm Turnover: Evidence from product-based TFP measures in the Japanese manufacturing industries

Author Name KAWAKAMI Atsushi  (Research Assistant, RIETI / Gakushuin University) /MIYAGAWA Tsutomu  (Faculty Fellow, RIETI) /TAKIZAWA Miho  (Toyo University)
Creation Date/NO. August 2011 11-E-064
Research Project Productivity of Industries and Firms and Japanese Economic Growth
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Following Foster, Haltiwanger, and Syverson (2008), we construct physical output based TFP (TFPQ) measures using data from the Census of Manufactures. We find that productivity differences among business establishments using TFPQ are larger than those using the traditional revenue-based TFP measures (TFPR). The negative correlation between physical output and output prices implies that establishments are facing a downward demand curve and the traditional measures of TFP are affected by idiosyncratic demand shocks. Probit estimations regarding exit behavior show that the combined effects of physical productivity improvement and higher prices through the increase in demand result in a lower probability of exit. Breaking down aggregate productivity growth using TFPQ, we find that the contribution of the net entry effects the largest factor to productivity improvement, in contrast to previous Japanese studies. Our results provide a more positive foundation for “creative destruction” policies than previous studies suggest.