Productivity and Business Dynamism in Japan — Comparison with the EU Countries Using Firm-level Data

How can we evaluate the performance of the Japanese economy in terms of business activities? To answer this question, both the performances of the Japanese economy and that of other countries need to be measured under a common methodology and compared. Furthermore, such comparison should be done based not only on measures of productivity but also on the so-called "measures of business dynamism ". Those measures account for how numerous heterogeneous firms are growing and declining, how market concentrations change, how markups are evolving, and so on. Toward this end, we measure productivity and various determinants of business dynamism for Japanese firms using the "Basic Survey of Japanese Business Structure and Activities" and compare them with those of EU countries (CompNet 8th Vintage firm-level data), based on a common methodology. The comparison of those two sets of results for the period after 2000 reveals that while continuous productivity improvements were observed in several EU countries, productivity growth in Japan has been stagnating over the 2010s. Such improvement in EU countries is accompanied by the increase in allocative efficiency while the allocative efficiency in Japan has been deteriorating. We also find that the decline in capital intensity in Japan is pronounced.