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Can Intangible Investments Ease Declining Rates of Return on Capital in Japan?

Author

Listed:
  • Tsutomu Miyagawa
  • Miho Takizawa
  • Konomi Tonogi

Abstract

Japan's economic growth has slowed since the collapse of the bubble economy in the 1990s due to low capital accumulation. We focus on the low rate of return on capital, which led to this slow capital accumulation, finding that it was caused by an increase in the capital-output ratio and low capital share. Not only has the rate of return on capital declined, but its variance across industries has increased, as has the number of industries with negative rates of return. We estimate a profit function in which the profit rate is explained not only by the real wage but also by intangibles. The estimation results show that investment in human resources increases the profit rate and that intangibles contribute to this increase through productivity improvement, especially in the IT industry. Our study implies that governments should implement a comprehensive innovation policy that stimulates investments not only in R&D, but also in IT and human resources.

Suggested Citation

  • Tsutomu Miyagawa & Miho Takizawa & Konomi Tonogi, 2017. "Can Intangible Investments Ease Declining Rates of Return on Capital in Japan?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 33, pages 114-127, Fall.
    • Handle: RePEc:sls:ipmsls:v:33:y:2017:6
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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