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Declining Rate of Return on Capital and the Role of Intangibles in Japan


  • MIYAGAWA Tsutomu
  • TONOGI Konomi


Since the collapse of the bubble economy, economic growth rates in Japan have slowed down as a result of low capital accumulation. We focus on the low rate of return on capital, which led to this slow capital accumulation. We find that the increase in the capital/output ratio and low capital share led to the low rate of return on capital. Not only has the rate of return on capital declined, but also its variance has grown and the number of industries with negative rates of return has increased. Then, we estimate a modified factor price frontier model using industry-level data. In our estimations, the profit rate is explained not only by the real wage but also by intangible investments. Estimation results show that investment in human resources leads to an increase in the profit rate. However, the complementary effects between information technology (IT) or research and development (R&D) capital and tangible capital are indefinite as suggested by Chun et al. (2015). Our study implies that the government should take a comprehensive innovation policy including improvements in human resources and organizational structure as well as IT and R&D investments to revitalize capital formation in Japan.

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  • MIYAGAWA Tsutomu & TAKIZAWA Miho & TONOGI Konomi, 2016. "Declining Rate of Return on Capital and the Role of Intangibles in Japan," Discussion papers 16051, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:16051

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    1. Kyoji Fukao & Tsutomu Miyagawa & Hak Kil Pyo & Keun Hee Rhee, 2012. "Estimates of Total Factor Productivity, the Contribution of ICT, and Resource Reallocation Effects in Japan and Korea," Chapters,in: Industrial Productivity in Europe, chapter 9 Edward Elgar Publishing.
    2. Thwaites, Gregory, 2014. "Why are real interest rates so low? Secular stagnation and the relative price of investment goods," LSE Research Online Documents on Economics 86328, London School of Economics and Political Science, LSE Library.
    3. Albert Ando & Dimitrios Christelis & Tsutomu Miyagawa, 2003. "Inefficiency of Corporate Investment and Distortion of Savings Behavior in Japan," NBER Chapters,in: Structural Impediments to Growth in Japan, pages 155-190 National Bureau of Economic Research, Inc.
    4. Hyunbae CHUN & MIYAGAWA Tsutomu & Hak Kil PYO & TONOGI Konomi, 2015. "Do Intangibles Contribute to Productivity Growth in East Asian Countries? Evidence from Japan and Korea," Discussion papers 15055, Research Institute of Economy, Trade and Industry (RIETI).
    5. Michael Bruno & Jeffrey D. Sachs, 1985. "Economics of Worldwide Stagflation," NBER Books, National Bureau of Economic Research, Inc, number brun85-1, January.
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