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

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  • Hyeog KWON
  • Futoshi NARITA
  • Machiko NARITA

Abstract

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."

Suggested Citation

  • Hyeog KWON & Futoshi NARITA & Machiko NARITA, 2009. "Resource Reallocation and Zombie Lending in Japan in the '90s," Discussion papers 09052, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:09052
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    References listed on IDEAS

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    Cited by:

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    3. Andreas Jobst & Ms. Huidan Huidan Lin, 2016. "Negative Interest Rate Policy (NIRP): Implications for Monetary Transmission and Bank Profitability in the Euro Area," IMF Working Papers 2016/172, International Monetary Fund.
    4. Ichiro Muto & Nao Sudo & Shunichi Yoneyama, 2023. "Productivity Slowdown in Japan's Lost Decades: How Much of It Can Be Attributed to Damaged Balance Sheets?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(1), pages 159-207, February.
    5. Kaoru Hosono & Miho Takizawa, 2012. "Do Financial Frictions Matter as a Source of Misallocation? Evidence from Japan," Discussion papers ron246, Policy Research Institute, Ministry of Finance Japan.
    6. Mr. Waikei Raphael Lam & Mr. Jongsoon Shin, 2012. "What Role Can Financial Policies Play in Revitalizing SMEs in Japan?," IMF Working Papers 2012/291, International Monetary Fund.
    7. Kaoru HOSONO & Miho TAKIZAWA, 2015. "Misallocation and Establishment Dynamics," Discussion papers 15011, Research Institute of Economy, Trade and Industry (RIETI).
    8. Atsuyuki Kato, 2012. "Productivity, returns to scale and product differentiation in the retail trade industry: an empirical analysis using Japanese firm-level data," Journal of Productivity Analysis, Springer, vol. 38(3), pages 345-353, December.

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