The Determinants of Investment in Tangible Fixed Capital in Japan: Evidence from Firm Level

Author Name FUKAO Kyoji (Faculty Fellow, RIETI) / KIM YoungGak (Senshu University) / KWON Hyeog Ug (Faculty Fellow, RIETI) / IKEUCHI Kenta (Fellow (Policy Economist), RIETI)
Creation Date/NO. March 2021 21-J-014
Research Project East Asian Industrial Productivity
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This paper empirically analyzed the determinants of the investment in tangible fixed capital by Japanese firms after the global financial crisis in 2008, using the micro data of "the Basic Survey of Japanese Business Structure and Activities". With regard to the investment of Japanese firms since the global financial crisis, many previous studies have investigated why investment is sluggish despite increased profits. It has been argued that causes of the stagnation of investment are the slowdown of TFP growth, the use of internal funds on R&D, unmeasured investment on the intangible assets, FDI, M&A, etc., and increasing internal reserves as a precautionary motive. In this paper, we examine these arguments by estimating the investment function of Japanese firms. The main results are as follows. 1) firms with higher TFP increased investment, 2) M&A and investment in software are complementary with investment in tangible fixed capital, and 3) increased cash flow increased fixed investment.