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Industrial Policy Cuts Two Ways: Evidence from Cotton Spinning Firms in Japan, 1956-1964

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  • Kozo Kiyota

    (Faculty of Business Administration, Yokohama National University)

  • Tetsuji Okazaki

    (Faculty of Economics, University of Tokyo)

Abstract

A number of studies have revealed that the effect of industrial policy on productivity growth is negative. Is this because industrial policy fails to control the activities of firms, or because it can effectively control them? This paper attempts to answer these questions, using firm-level data from the cotton spinning industry in Japan for the period 1956-64. It has been determined that industrial policy cut two ways during this period. Industrial policy effectively controlled the output of cotton spinning firms, which contributed to the establishment of a stable market structure during the period. On the flip side, such policy constrained the reallocation of resources from less productive large firms to more productive small firms. Combined with the negative productivity growth of large firms during this period, industrial policy resulted in negative industry productivity growth.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-563.

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Length: 35 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:tky:fseres:2008cf563

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  1. Tor Jakob Klette & Zvi Griliches, 1992. "The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Engogenous," NBER Working Papers 4026, National Bureau of Economic Research, Inc.
  2. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
  3. Amiti, Mary & Konings, Jozef, 2005. "Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia," CEPR Discussion Papers 5104, C.E.P.R. Discussion Papers.
  4. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
  5. Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc.
  6. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1997. "Corporate governance, competition policy and industrial policy," ULB Institutional Repository 2013/9613, ULB -- Universite Libre de Bruxelles.
  7. Fukunari Kimura & Kozo Kiyota, 2006. "Exports, FDI, and Productivity: Dynamic Evidence from Japanese Firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(4), pages 695-719, December.
  8. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  9. Kiyota, Kozo & Okazaki, Tetsuji, 2005. "Foreign technology acquisition policy and firm performance in Japan, 1957-1970: Micro-aspects of industrial policy," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 563-586, September.
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Cited by:
  1. KIYOTA Kozo & OKAZAKI Tetsuji, 2013. "Effects of Industrial Policy on Productivity: The case of import quota removal during postwar Japan," Discussion papers 13093, Research Institute of Economy, Trade and Industry (RIETI).

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