Sources of Heterogeneous Treatment Effects of Incorporating Manufacturing Kohsetsushi: Evidence from panel data of technology extension

A series of public administration reforms were implemented in Japan to cope with the secular stagnation since the 1990s, some of which took the form of the incorporation of public organizations. Drawing on the incorporation of Kohsetsushi, technology extension service providers established by local governments, which was a policy program implemented in the early 2000s, this study evaluates its average treatment effect on the treated (ATT) by applying the difference-in-differences (DID) model to panel data (2000-2021). Unlike the uniform and simultaneous incorporation of national universities, it was local governments that decided whether and when to incorporate their Kohsetsushi, which implies a staggered treatment. Applying the conventional two-way fixed effects DID (TWFE DID) model to panel data with staggered treatments may yield biased ATTs due to forbidden comparisons between late and early treated units where early treated units are used as a control group. This study adopted the DID model proposed by Callaway and Sant’Anna (2021) (CS DID) to correct the bias by avoiding contaminated comparisons. The ATTs in terms of scientific knowledge and inventive activities are significantly positive for both models. In contrast, the ATTs in terms of technology extension are heterogeneous and significantly positive for the TWFE DID model but insignificant for the CS DID model. Sources of heterogeneity are discussed from the perspectives of agglomeration externalities, learning capacity, and industrial knowledge bases.