MIYAGAWA Tsutomu (Faculty Fellow, RIETI / Department of Economics, Gakushuin University) /SAKURAGAWA Yukie (Faculty of Management, Atomi University) /TAKIZAWA Miho (Graduate School of Economics, Hitotsubashi University)
Constructing thirty-seven industries database, we examines whether measured productivity in Japan is procyclical and investigates the sources of that procyclicality using the production function approach employed by Hall (1990) and Basu and Fernald (1995). At the aggregate level, the measured Solow residual shows procyclicality. Large numbers of industries show constant returns to scale. No significant evidence for the presence of thick-market externalities is found. Our results also hold when we consider labor hoarding, part-time employment, and the adjustment cost of investment. The results suggest policies to revitalize the Japanese economy should concentrate on promoting productivity growth.