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Fixed Costs, Imperfect Competition and Bias in Technology Measurement: Japan and the United States

  • Kiyohiko G. Nishimura

    (Faculty of Economics, Universtiy of Tokyo)

  • Masato Shirai

    (Department of Economics, University of Tokyo)

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    This paper examines the direction and the magnitude of bias in the technological progress measurement caused by imperfect competition and fixed costs. We show that imperfect competition coupled with fixed costs is likely to make the traditional measurement of technological progress biased. The direction of bias depends on the relative magnitude of growth between the capital stocks and non-capital inputs and on whether firms enjoy a pure profit in the long run. We then measure the actual magnitude of this bias by re-estimating sectoral technological progress in Japan and the United States. We obtain three main results. First, Japan as a whole is less competitive and has larger fixed costs than the United States. Internationally competitive sectors in both countries have smaller fixed cots. Second, the bias in the measurement caused by imperfect competition and fixed costs is relatively small because firms' pure profit is close to zero. Third, there is a negative correlation between technological progress and the pure profit in the United States, though there is no correlation in Japan.

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    Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-97.

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    Length: 38 pages
    Date of creation: Nov 2000
    Date of revision:
    Handle: RePEc:tky:fseres:2000cf97
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    1. Flaig, Gebhard & Steiner, Viktor, 1993. "Searching for the \"productivity slowdown’: some surprising findings from West German manufacturing," Munich Reprints in Economics 20364, University of Munich, Department of Economics.
    2. Tsao, Yuan, 1985. "Growth without productivity: Singapore Manufacturing in the 1970s," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 25-38.
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    4. Young, Alwyn, 1994. "Lessons from the East Asian NICS: A contrarian view," European Economic Review, Elsevier, vol. 38(3-4), pages 964-973, April.
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    7. Nishimura, Kiyohiko G. & Ohkusa, Yasushi & Ariga, Kenn, 1999. "Estimating the mark-up over marginal cost: a panel analysis of Japanese firms 1971-1994," International Journal of Industrial Organization, Elsevier, vol. 17(8), pages 1077-1111, November.
    8. Susanto Basu, 1995. "Procyclical Productivity: Increasing Returns or Cyclical Utilization?," NBER Working Papers 5336, National Bureau of Economic Research, Inc.
    9. Morrison, Catherine J, 1992. "Unraveling the Productivity Growth Slowdown in the United States, Canada and Japan: The Effects of Subequilibrium, Scale Economies and Markups," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 381-93, August.
    10. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-30, April.
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