Recovery and Transition of the Japanese Economy after World War II: Productivity implications of policy regime changes on the coal mining industry

Immediately after World War II, under the occupation by the United States, the Japanese government implemented various policies aimed at initiating economic recovery through restoring production and suppressing inflation. Reflecting the policy of the U.S. government, Japanese policy regimes evolved through three phases: First, naïve economic controls were implemented that prioritized increasing production but disregarded productivity, second, economic controls aiming at increasing productivity, and finally a transition to a market economy. In this paper, we explored implications of this sequence of policy regime change, focusing on the coal mining industry. Analyzing mine-level panel data, we found that naive economic controls prioritizing increasing production, and particularly price control policies, distorted coal mining firms’ incentives for increasing productivity. Specifically, the firms whose productivity was higher in the initial year lacked incentives to increase productivity, and consequently, productivity of those firms stagnated. Additionally, despite policy changes aiming at productivity increase implemented in 1948, the changes had no significant effect on productivity growth. In contrast, the transition to a market economy had a positive impact on productivity growth; however, this impact was heterogeneous, and only firms whose initial productivity was higher and whose incentives had been distorted under the system of economic control saw positive effects.