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Was the Barrier to Labor Mobility an Important Factor for the Prewar Japanese Stagnation?

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  • Aoki, Shuhei

Abstract

Using a simple framework, I reexamine the Hayashi and Prescott hypothesis (2006) that a barrier to labor mobility that maintained high agricultural employment was a cause of the stagnation in the prewar Japanese economy. I find that the labor misallocation between the agricultural and non-agricultural sectors had larger negative effects on the prewar Japanese aggregate productivity than on the postwar aggregate productivity. However, this is not because the wage differential between the sectors was larger but because the agricultural nominal share was larger in prewar Japan. Finally, I show that a model that does not assume a barrier to labor mobility can explain the change in the prewar and postwar agricultural employment rate and nominal share. These results suggest that factors other than labor misallocation are responsible for the stagnation in the prewar Japanese economy.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8178.

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Date of creation: 09 Apr 2008
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Handle: RePEc:pra:mprapa:8178

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Keywords: agriculture; barrier to labor mobility; prewar Japan; resource misallocation; two-sector model;

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  1. Laitner, John, 2000. "Structural Change and Economic Growth," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(3), pages 545-61, July.
  2. Diego Restuccia & Dennis Tao Yang & Xiaodong Zhu, 2007. "Agriculture and Aggregate Productivity: A Quantitative Cross-Country Analysis," Working Papers e07-3, Virginia Polytechnic Institute and State University, Department of Economics.
  3. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," Working Papers, University of Toronto, Department of Economics tecipa-283, University of Toronto, Department of Economics.
  4. Fumio Hayashi & Edward C. Prescott, 2008. "The Depressing Effect of Agricultural Institutions on the Prewar Japanese Economy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 116(4), pages 573-632, 08.
  5. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," Discussion Papers, Stanford Institute for Economic Policy Research 07-006, Stanford Institute for Economic Policy Research.
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  7. Laura Alfaro & Andrew Charlton & Fabio Kanczuk, 2009. "Plant-Size Distribution and Cross-Country Income Differences," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER International Seminar on Macroeconomics 2008, pages 243-272 National Bureau of Economic Research, Inc.
  8. Douglas Gollin & Stephen Parente & Richard Rogerson, 2002. "The Role of Agriculture in Development," Department of Economics Working Papers, Department of Economics, Williams College 2002-09, Department of Economics, Williams College.
  9. Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, Econometric Society, vol. 46(4), pages 883-900, July.
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