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Fixed Costs, Imperfect Competition and Bias in Technology Measurement: Japan and the United States

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  • Kiyohiko G. Nishimura

    (Faculty of Economics, Universtiy of Tokyo)

  • Masato Shirai

    (Department of Economics, University of Tokyo)

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    Abstract

    This paper examines the direction and the magnitude of bias in the technological progress measurement caused by imperfect competition and fixed costs. We show that imperfect competition coupled with fixed costs is likely to make the traditional measurement of technological progress biased. The direction of bias depends on the relative magnitude of growth between the capital stocks and non-capital inputs and on whether firms enjoy a pure profit in the long run. We then measure the actual magnitude of this bias by re-estimating sectoral technological progress in Japan and the United States. We obtain three main results. First, Japan as a whole is less competitive and has larger fixed costs than the United States. Internationally competitive sectors in both countries have smaller fixed cots. Second, the bias in the measurement caused by imperfect competition and fixed costs is relatively small because firms' pure profit is close to zero. Third, there is a negative correlation between technological progress and the pure profit in the United States, though there is no correlation in Japan.

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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2000/2000cf97.pdf
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    Bibliographic Info

    Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-97.

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    Length: 38 pages
    Date of creation: Nov 2000
    Date of revision:
    Handle: RePEc:tky:fseres:2000cf97

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    1. Kim Jong-Il & Lau Lawrence J., 1994. "The Sources of Economic Growth of the East Asian Newly Industrialized Countries," Journal of the Japanese and International Economies, Elsevier, vol. 8(3), pages 235-271, September.
    2. Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.).
    3. Catherine J. Morrison, 1989. "Unraveling the Productivity Growth Slowdown in the U.S., Canada and Japan: The Effects of Subequilibrium, Scale Economies and Markup," NBER Working Papers 2993, National Bureau of Economic Research, Inc.
    4. Park, Seung-Rok & Kwon, Jene K, 1995. "Rapid Economic Growth with Increasing Returns to Scale and Little or No Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 77(2), pages 332-51, May.
    5. Basu, Susanto, 1996. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 719-51, August.
    6. Young, Alwyn, 1994. "Lessons from the East Asian NICS: A contrarian view," European Economic Review, Elsevier, vol. 38(3-4), pages 964-973, April.
    7. Susanto Basu & John G. Fernald, 1995. "Aggregate productivity and the productivity of aggregates," International Finance Discussion Papers 532, Board of Governors of the Federal Reserve System (U.S.).
    8. Hansson, B., 1990. "Productivity Measurement Under Imperfect Competition And With Varying Degrees Of Capital Utilization," Papers 1990l, Uppsala - Working Paper Series.
    9. repec:fth:harver:1487 is not listed on IDEAS
    10. Flaig, Gebhard & Steiner, Viktor, 1993. "Searching for the "Productivity Slowdown": Some Surprising Findings from West German Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 57-65, February.
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    Cited by:
    1. Alan J. Auerbach & Maurice Obstfeld, 2003. "The Case for Open-Market Purchases in a Liquidity Trap," NBER Working Papers 9814, National Bureau of Economic Research, Inc.

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