Declining Capital Formation in Japan and the Role of Intangibles—Empirical Studies using Industry-level Data

Growth accounting using the JIP database tells us that the contribution of capital accumulation to economic growth in the first half of 2010s is very small. As Gutierrez and Philippon（2017）and Crouzet and Eberly (2018) point out, declining capital formation led to secular stagnation in advanced economies in the 2010s.

Following their arguments based on Tobin's q theory with multiple capital goods, we examine whether the declining capital formation in tangibles is covered by the increasing capital formation in intangibles. Our study shows that capital formation in intangibles in Japan explains three-fourths of the investment gap between capital formation estimated by Tobin's q theory with multiple capital and real tangible investment.

Although our study shows that capital formation in intangibles complements the declining capital formation in tangible assets, its complementary role is insufficient. We recommend that the government support capital formation in intangibles.