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Resource Reallocation and Zombie Lending in Japan in the '90s

  • KWON Hyeog Ug
  • NARITA Futoshi
  • NARITA Machiko

We investigate the efficiency of resource reallocation in Japan during the 1990s, a decade of economic recession, by measuring aggregate productivity growth (APG) using a plant-level data set of manufacturers from 1981-2000. We find that resource reallocation contributed negatively to APG, mainly due to inefficient labor reallocation. A possible reason for the inefficient labor reallocation is misdirected bank lending or "zombie lending" to otherwise defunct plants. To quantify its impact, we develop a model with plant-level heterogeneity, calibrate it based on the results of plant-level productivity estimation, and conduct a counterfactual exercise. The results show that 37% of the actual decline in APG due to inefficient labor reallocation in Japan in the '90s is attributable to "zombie lending."

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 09052.

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Length: 49 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:eti:dpaper:09052
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  1. Ricardo J. Caballero & Takeo Hoshi & Anil K. Kashyap, 2006. "Zombie Lending and Depressed Restructuring in Japan," NBER Working Papers 12129, National Bureau of Economic Research, Inc.
  2. John Haltiwanger & C J Krizan & Lucia Foster, 1998. "Aggregate Productivity Growth: Lessons From Microeconomic Evidence," Working Papers 98-12, Center for Economic Studies, U.S. Census Bureau.
  3. Joe Peek & Eric S. Rosengren, 2005. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," American Economic Review, American Economic Association, vol. 95(4), pages 1144-1166, September.
  4. Diego Restuccia & Richard Rogerson, 2007. "Policy Distortions and Aggregate Productivity with Heterogeneous Plants," NBER Working Papers 13018, National Bureau of Economic Research, Inc.
  5. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
  6. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
  7. Van Biesebroeck, Johannes, 2008. "The Sensitivity of Productivity Estimates," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 311-328.
  8. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  9. Johannes Van Biesebroeck, 2004. "Robustness of Productivity Estimates," NBER Working Papers 10303, National Bureau of Economic Research, Inc.
  10. Kyoji Fukao & Hyeog Ug Kwon, 2004. "Why Did Japan's TFP Growth Slow Down in the Lost Decade?: An Empirical Analysis Based on Firm-Level Data of Manufacturing Firms," Hi-Stat Discussion Paper Series d04-50, Institute of Economic Research, Hitotsubashi University.
  11. Kyoji Fukao & Young Gak Kim & Hyeog Ug Kwon, 2006. "Plant Turnover and TFP Dynamics in Japanese Manufacturing," Hi-Stat Discussion Paper Series d06-180, Institute of Economic Research, Hitotsubashi University.
  12. FUKAO Kyoji & HAMAGATA Sumio & INUI Tomohiko & ITO Keiko & Hyeog Ug KWON & MAKINO Tatsuji & MIYAGAWA Tsutomu & NAKANISHI Yasuo & TOKUI Joji, 2007. "Estimation Procedures and TFP Analysis of the JIP Database 2006 Provisional Version," Discussion papers 07003, Research Institute of Economy, Trade and Industry (RIETI).
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