The Effects of the Use of Information Technology on Markups in Japanese Manufacturing

This paper examines how the use of information technology affects firm-level markups in Japanese manufacturing, using data from the Basic Survey of Japanese Business Structure and Activities over the period 2007-2012. As a proxy for the use of information technology, four variables are employed: the ratio of employees engaged in information processing to the number of employed, the ratio of software assets to intangible assets, the ratio of investment on information technology to total investment, and the ratio of costs on information processing and communications to total sales. Firm-level markups are estimated by a translog production function that assumes capital, labor, and materials as inputs. Estimation results indicate that markups would increase along with the ratio of employees engaged in information processing. In contrast, the other three variables associated with the use of information technology were found to have an adverse relationship with the markups.