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

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Author Info
Kozo Kiyota (Faculty of Business Administration, Yokohama National University)
Tetsuji Okazaki (Faculty of Economics, University of Tokyo)

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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
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Handle: RePEc:tky:fseres:2008cf563

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  1. Lucia Foster & John Haltiwanger & C.J. Krizan, 1998. "Aggregate Productivity Growth: Lessons from Microeconomic Evidence," NBER Working Papers 6803, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2004. "The Effects of Structural Reforms on Productivity and Profitability Enhancing Reallocation: Evidence from Colombia," Economics Working Papers 763, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  3. Tetsuji Okazaki & Takafumi Korenaga, 1999. "The Foreign Exchange Allocation Policy in Postwar Japan: Its Institutional Framework and Function," NBER Chapters, in: Changes in Exchange Rates in Rapidly Development Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pages 311-340 National Bureau of Economic Research, Inc. [Downloadable!]
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  4. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
  5. Klette, T.J., 1992. "The Inconsistency of Common Scale Estimators when Output Prices are unobserved and Endogenous," Harvard Institute of Economic Research Working Papers 1586, Harvard - Institute of Economic Research.
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