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

  • FUKAO Kyoji
  • MIYAGAWA Tsutomu

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.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 07046.

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Length: 30 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:eti:dpaper:07046
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  1. Bart van Ark & Robert Inklaar & Robert H. McGuckin, 2003. "ICT and Productivity in Europe and the United States: Where Do the Differences Come From?," Economics Program Working Papers 03-05, The Conference Board, Economics Program.
  2. 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.
  3. repec:dgr:rugccs:200311 is not listed on IDEAS
  4. 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, 03.
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  6. 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.
  7. 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.
  8. Kevin J. Stiroh, 2001. "Information technology and the U.S. productivity revival: what do the industry data say?," Staff Reports 115, Federal Reserve Bank of New York.
  9. Carol Corrado & Charles Hulten & Daniel Sichel, 2004. "Measuring capital and technology: an expanded framework," Finance and Economics Discussion Series 2004-65, Board of Governors of the Federal Reserve System (U.S.).
  10. 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).
  11. 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, 09.
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