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Japan’s Quest for Growth

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  • Murtaza H. Syed
  • Jinsook Lee
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    Abstract

    As labor input in Japan shrinks with population aging, capital accumulation and productivity gains will drive growth over the medium-term. At the same time, a changing global landscape calls for a shift in export-oriented investment toward new markets and a new generation of products, as well as increased investment by domestically-oriented firms. What policies could be adopted to help firms adjust to the imperatives of the post-crisis global economy and boost medium-term growth? Using disaggregated data, this paper investigates the determinants of investment and R&D spending by Japanese firms. The results suggest that policies could usefully focus on four areas. First, raising the return on investment, including through reforms to the tax code. Second, decreasing uncertainty through improved risk management by firms and by bolstering the business climate. Third, improving SME access to finance, notably by encouraging venture capital investment in innovative areas and more risk-based lending. And fourth, reducing excess leverage and supporting corporate restructuring to enable new investments to flourish.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/294.

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    Length: 21
    Date of creation: 01 Dec 2010
    Date of revision:
    Handle: RePEc:imf:imfwpa:10/294

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    Related research

    Keywords: Capital; Economic growth; Economic models; Industrial investment; Manufacturing sector; Productivity; Services sector; r & d; r & d spending; venture capital; corporate tax; fixed capital; external financing; investment by sector; credit guarantees; return on investment; r & d tax; investment decisions; gross fixed capital formation; investors; tax rate; r & d intensity; corporate tax rates; institutional investors; cost of capital; foreign investment; corporate tax rate; research institute; investment projects; outstanding debt; research programs; r & d investment; rate of return; domestic investment; corporate tax revenue; private investment; private equity; intangible assets; business r & d; tax revenue; discounted value; r & d efficiency; investment rate; regulatory framework; r & d tax credits; investment flows;

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    References

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    1. Toshihiko Mukoyama, 2009. "On the Establishment Dynamics in the United States and Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 27(1), pages 53-74, November.
    2. Iichiro Uesugi & Koji Sakai & Guy M. Yamashiro, 2006. "Effectiveness of Credit Guarantees in the Japanese Loan Market," Discussion papers 06004, Research Institute of Economy, Trade and Industry (RIETI).
    3. Lee Branstetter & Yoshiaki Nakamura, 2003. "Is Japan's Innovative Capacity in Decline?," NBER Working Papers 9438, National Bureau of Economic Research, Inc.
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