Productivity Dynamics and R&D Spillovers in the Japanese Manufacturing Industry: An empirical analysis based on micro-level data

Recent studies on productivity dynamics analysis using plant-level data found that major sources of the decline in aggregate productivity growth is due to the negative exit effect, in which the productivity level of exiting plants is higher than the industry average, and the total factor productivity (TFP) of small plants has stagnated. Using matched data of the Census of Manufactures and the Report on the Survey of Research and Development for 1987 and 2007, we examine two issues by focusing on regional economics. First, we decompose the aggregate productivity growth in Japan's manufacturing sector and prefectural level to investigate in which prefecture did negative effects occur. We found that a large negative exit effect occurred in manufacturing plants agglomerations such as Tokyo, Osaka, and Kanagawa after 1995. Second, we analyze the effect of research and development (R&D), private R&D spillovers, and public R&D spillovers on productivity growth in the Japanese manufacturing sector. Our findings are as follows. (1) The effect of R&D spillovers from other firms is attenuated by distance. (2) The effect of R&D spillovers across firms has remarkably declined since the late 1990s by exits of plants which belong to R&D intensive firms in the agglomerations. This means that the exits by such plants bring simultaneously the negative exit effect and stagnation of TFP growth in small plants. (3) The effect of public R&D spillovers is more likely to decline. This is caused by the reduction of R&D in public research organizations since the late 1990s.