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Revisiting Productivity Differences and Firm Turnover: Evidence from product-based TFP measures in the Japanese manufacturing industries

  • KAWAKAMI Atsushi
  • MIYAGAWA Tsutomu
  • TAKIZAWA Miho

Following Foster, Haltiwanger, and Syverson (2008), we construct physical output based TFP (TFPQ) measures using data from the Census of Manufactures. We find that productivity differences among business establishments using TFPQ are larger than those using the traditional revenue-based TFP measures (TFPR). The negative correlation between physical output and output prices implies that establishments are facing a downward demand curve and the traditional measures of TFP are affected by idiosyncratic demand shocks. Probit estimations regarding exit behavior show that the combined effects of physical productivity improvement and higher prices through the increase in demand result in a lower probability of exit. Breaking down aggregate productivity growth using TFPQ, we find that the contribution of the net entry effects the largest factor to productivity improvement, in contrast to previous Japanese studies. Our results provide a more positive foundation for "creative destruction" policies than previous studies suggest.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 11064.

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Length: 26 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:eti:dpaper:11064
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  1. KAWAKAMI Atsushi & MIYAGAWA Tsutomu, 2010. "Product Switching and Firm Performance in Japan," Discussion papers 10043, Research Institute of Economy, Trade and Industry (RIETI).
  2. Kozo Kiyota & Miho Takizawa, 2007. "The Shadow of Death: Pre-exit Performance of Firms in Japan," Hi-Stat Discussion Paper Series d06-204, Institute of Economic Research, Hitotsubashi University.
  3. Katsuya Takii, 2011. "Persistent Productivity Differences Between Firms," OSIPP Discussion Paper 11E004, Osaka School of International Public Policy, Osaka University.
  4. Kyoji Fukao & Hyeog Ug Kwon, 2006. "Why Did Japan'S Tfp Growth Slow Down In The Lost Decade? An Empirical Analysis Based On Firm-Level Data Of Manufacturing Firms," The Japanese Economic Review, Japanese Economic Association, vol. 57(2), pages 195-228.
  5. Nishimura, Kiyohiko G. & Nakajima, Takanobu & Kiyota, Kozo, 2005. "Does the natural selection mechanism still work in severe recessions?: Examination of the Japanese economy in the 1990s," Journal of Economic Behavior & Organization, Elsevier, vol. 58(1), pages 53-78, September.
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