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Productivity in Japan, the US, and the Major EU Economies: Is Japan Falling Behind?

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  • FUKAO Kyoji
  • MIYAGAWA Tsutomu

Abstract

Using the recently released EU KLEMS Database (March 2007) and other statistics, we examined whether Japan experienced similar problem as the major EU economies with regard to the introduction of ICT to market services. The major results obtained through our analysis are follows: 1. It is not the gap in TFP growth but differences in factor input growth that underlie the large difference in the economic growth performance of France, the UK and Italy on the one hand and Japan on the other in the period after 1995. The four major EU economies (Germany, France, the UK and Italy) and Japan experienced a slowdown in TFP growth of a similar magnitude after 1995. The US was exceptional in accomplishing an acceleration in TFP growth. 2. TFP growth in the electrical machinery, post and communication sector was still highest in Japan among the six economies after 1995. However, the problem for Japan is that, like in other countries, the share of this sector in the economy overall is not very large. The largest declines in TFP growth in Japan occurred in distribution services (retail, wholesale and transportation) and in the rest of the manufacturing sector (i.e., excluding electrical machinery). The labor input shares of these two sectors were very large (23.4% and 16.8% respectively). The US and the major EU economies except Italy recorded high TFP growth in these two sectors. 3. In manufacturing sectors, productivity levels in Japan were on par with those in the US, Germany and France. However, they were very low in comparison with the three countries both in market services and other goods-producing industries. It therefore seems that there is large room for improvement in Japan's productivity in market services and other goods-production services through the adoption of already existing technologies and better resource allocation. 4. The US and the UK experienced a very rapid increase in ICT capital service inputs after 1995. In contrast with this, in Japan, the contribution of ICT capital service input growth declined in all sectors after 1995. Across the six countries, we can observe a positive correlation between ICT capital service input growth and TFP growth. This fact supports the conjecture that Japan's sluggish growth in ICT capital service inputs is at least partly responsible for the slowdown in Japan's TFP growth after 1995. 5. According to several recent studies, it seems that in order to fully realize the direct and indirect efficiency-improving effects of ICT capital, the simultaneous accumulation of intangible assets, such as human capital and organizational capital, is indispensable. Investment activity in intangibles is less active in Japan than in the US and the UK, although there are many high-skilled workers in Japan. The relatively low level of intangible investment may be a good candidate to explain why the accumulation of ICT capital and TFP growth stalled in Japan.

Suggested Citation

  • FUKAO Kyoji & MIYAGAWA Tsutomu, 2007. "Productivity in Japan, the US, and the Major EU Economies: Is Japan Falling Behind?," Discussion papers 07046, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:07046
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    File URL: https://www.rieti.go.jp/jp/publications/dp/07e046.pdf
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    References listed on IDEAS

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    1. Mauro Giorgio Marrano & Jonathan Haskel, 2006. "How Much Does the UK Invest in Intangible Assets?," Working Papers 578, Queen Mary University of London, School of Economics and Finance.
    2. Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters,in: Measuring Capital in the New Economy, pages 11-46 National Bureau of Economic Research, Inc.
    3. Bart van Ark & Robert Inklaar & Robert H. McGuckin, 2003. "ICT and Productivity in Europe and the United States Where Do the Differences Come From?," CESifo Economic Studies, CESifo, vol. 49(3), pages 295-318.
    4. Kyoji Fukao & Tsutomu Miyagawa & Kentaro Mukai & Yukio Shinoda & Konomi Tonogi, 2009. "Intangible Investment In Japan: Measurement And Contribution To Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 717-736, September.
    5. Stiroh, Kevin J, 2002. "Are ICT Spillovers Driving the New Economy?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(1), pages 33-57, March.
    6. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, March.
    7. Takahito Kanamori & Kazuyuki Motohashi, 2006. "Centralization or Decentralization of Decision Rights? Impact on IT Performance of Firms," Discussion papers 06032, Research Institute of Economy, Trade and Industry (RIETI).
    8. repec:dgr:rugccs:200311 is not listed on IDEAS
    9. Ark, Bart van & Inklaar, Robert & McGuckin, Robert H., 2003. "ICT and productivity in Europe and the United States," CCSO Working Papers 200311, University of Groningen, CCSO Centre for Economic Research.
    10. Kevin J. Stiroh, 2002. "Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say?," American Economic Review, American Economic Association, vol. 92(5), pages 1559-1576, December.
    11. Miyagawa, Tsutomu & Ito, Yukiko & Harada, Nobuyuki, 2004. "The IT revolution and productivity growth in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 18(3), pages 362-389, September.
    12. Kazunori Minetaki, 2004. "The Effect of Information and Communication Technology on the Japanese Economy," Japanese Economy, Taylor & Francis Journals, vol. 32(1), pages 76-86.
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    Cited by:

    1. Wissner, Matthias, 2011. "ICT, growth and productivity in the German energy sector - On the way to a smart grid?," Utilities Policy, Elsevier, vol. 19(1), pages 14-19, January.
    2. Rodríguez-López, Jesús & Torres, José L., 2012. "Technological Sources Of Productivity Growth In Germany, Japan, And The United States," Macroeconomic Dynamics, Cambridge University Press, vol. 16(01), pages 133-150, February.
    3. repec:ebl:ecbull:eb-17-00510 is not listed on IDEAS
    4. Takuji Fueki & Takuji Kawamoto, 2008. "Does Information Technology Raise Japan's Productivity?," Bank of Japan Working Paper Series 08-E-8, Bank of Japan.
    5. Ralph Paprzycki, 2007. "The Determinants of and Prospects for Foreign Direct Investment in Japan," Hi-Stat Discussion Paper Series d07-211, Institute of Economic Research, Hitotsubashi University.

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