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An Econometric Analysis of Firm Specific Productivities: Evidence from Japanese plant level data

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  • ICHIMURA Hidehiko
  • KONISHI Yoko
  • NISHIYAMA Yoshihiko

Abstract

In estimating the production function of firms, problems of endogeneity and self selection exist as a result of firm-specific productivity shocks and entry/exit decisions. Several methods have been proposed to handle these problems, such as those by Olley and Pakes (1996) and Levinsohn and Petrin (1999, 2003). However, the endogeneity of labor input does not seem to be completely solved by these methods. We therefore propose an alternative semiparametric IV estimator. We suppose that firm-specific productivity influences labor input as well as capital input. We adopt the lagged variables of inputs as their instruments instead of investment inputs, unlike Olley and Pakes. Moreover, our econometric model should automatically adapt to the effect of the exit decision of each firm. We applied the model to Japanese plant-level panel data from 1982 to 2004 on the Census of Manufactures provided by the Ministry of Economy, Trade and Industry. We found that our estimator works well in an empirical study in terms of sign and magnitude of the technological parameters. Using the estimation residuals, we decomposed the TFP into firm-specific productivity and other exogenous shocks. We also aggregated the productivity shocks to industry-level productivities to determine the transition. We examined whether negative technological shocks were the main cause of poor economic performance in Japan during the "lost decade", and found that productivity did not decline in most Japanese industries since the 1980s. This implies that the recession might have been caused by demand-side factors rather than supply-side issues.

Suggested Citation

  • ICHIMURA Hidehiko & KONISHI Yoko & NISHIYAMA Yoshihiko, 2011. "An Econometric Analysis of Firm Specific Productivities: Evidence from Japanese plant level data," Discussion papers 11002, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:11002
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    File URL: https://www.rieti.go.jp/jp/publications/dp/11e002.pdf
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    References listed on IDEAS

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    1. Otsu Keisuke, 2010. "A Neoclassical Analysis of the Asian Crisis: Business Cycle Accounting for a Small Open Economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-39, July.
    2. NUTAHARA Kengo & INABA Masaru, 2008. "On Equivalence Results in Business Cycle Accounting," Discussion papers 08015, Research Institute of Economy, Trade and Industry (RIETI).
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    4. Kobayashi, Keiichiro & Inaba, Masaru, 2006. "Business cycle accounting for the Japanese economy," Japan and the World Economy, Elsevier, vol. 18(4), pages 418-440, December.
    5. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2003. "Accounting for the Great Depression," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-8.
    6. Erasmus Kersting, 2008. "The 1980s Recession in the UK: A Business Cycle Accounting Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 179-191, January.
    7. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, pages 586-606.
    8. Gregor Baeurle & Daniel Burren, 2007. "A Note on Business Cycle Accounting," Diskussionsschriften dp0705, Universitaet Bern, Departement Volkswirtschaft.
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    Cited by:

    1. KONISHI Yoko & NISHIMURA Yoshihiko, 2013. "A Note on the Identification of Demand and Supply Shocks in Production: Decomposition of TFP," Discussion papers 13099, Research Institute of Economy, Trade and Industry (RIETI).
    2. KONISHI Yoko & NISHIYAMA Yoshihiko, 2016. "Efficiency of the Retail Industry: Case of inelastic supply functions," Discussion papers 16054, Research Institute of Economy, Trade and Industry (RIETI).
    3. KONISHI Yoko & NOMURA Koji, 2015. "Energy Efficiency Improvement and Technical Changes in Japanese Industries, 1955-2012," Discussion papers 15058, Research Institute of Economy, Trade and Industry (RIETI).

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