The Decline in Capital Formation in Japan: Empirical research on Japanese listed firms data

Author Name ISHIKAWA Takayuki (Rissho University / RIETI Research Assistant)
Creation Date/NO. February 2023 23-E-008
Research Project Capital Accumulation and Productivity Growth after the COVID-19 Crisis
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Physical investment in Japan has weakened since the bubble burst. The U.S. and other advanced countries have also experienced a slump in physical investment since the global financial crisis.

Following Crouzet and Everly (2018), we examine whether the slump in physical investment in Japan shifted to investment in intangible assets, as in other advanced countries. Using firm-level data, this study estimates a Tobin’s Q-type investment function for tangible assets. Then, using these estimation results, we examine the extent to which the shift to investment in intangible assets has been a factor in Japan’s weak investment in tangible assets.

Our estimation results confirm that Research and Development (R&D) investment significantly explains weak physical investments. However, R&D can explain only part of the slump in physical investment. The results suggest that, unlike in other countries, not only intangible investment but also aggressive physical investment is essential for productivity improvement in Japan.