Why Do Japanese Firms Lag Behind in Introducing and Expanding IT Technologies?

This study, using large panel data of Japanese firms (2006-2014), empirically analyzes the determinants of the introduction and expansion of IT technologies by Japanese firms and their effects on the firms' total factor productivity (TFP) .

We examine the determinants of the extensive and intensive margins of IT investments. Significant existing research has pointed out that management participation by foreign firms leads to the introduction of the latest technology and management method, and we employ the foreign investment ratio as a proxy variable for the degree of introduction of the latest business management method using IT technologies. Our empirical results indicate that higher foreign participation leads to higher adaptation and expansion of IT technologies. We also find that IT investment in the industry positively affects IT utilization of the firm in the same industry. Our estimation results indicate positive spillover effects of management methods from the foreign firms and IT adaptation firms in the same industry, and the spillover effects play an important role in the introduction and expansion of firm IT investment.

Next, we examine the effect of IT investment on TFP and TFP growth rate. Our estimation results show that IT investment has a positive and significant effect on both Japanese firms' TFP and TFP growth rates.