Explaining Japan's Unproductive Two Decades

Author Name FUKAO Kyoji  (Faculty Fellow, RIETI)
Creation Date/NO. October 2013 13-P-021
Research Project East Asian Industrial Productivity
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Using industry- and micro-level data, this paper examines why Japan's productivity growth has been slow for such a long time and how it can be accelerated in the future. Japan's capital-to-gross domestic product (GDP) ratio continued to increase after 1991, which must have contributed to the decline in the rate of return on capital in Japan by decreasing the marginal productivity of capital. On the other hand, accumulation of information and communications technology (ICT) capital and intangible investment in Japan was very slow. Compared with large firms, which enjoyed an acceleration in total factor productivity (TFP) growth in recent years, Japanese small and medium-sized enterprises (SMEs) were left behind in ICT capital and intangible investment, and their productivity growth has been very low. Furthermore, as large firms expanded their supply chains globally and relocated their factories abroad, research and development (R&D) spillovers from large firms to SMEs seem to have declined.

Published: Kyoji Fukao, 2013. "Explaining Japan's Unproductive Two Decades," Asian Economic Policy Review, Vol. 8(2), pp. 193-213.