Entry of Foreign Multinational Firms and Productivity Growth of Domestic Firms: The case for Japanese firms (Japanese)

This paper examines whether and how the entry of foreign multinational firms affects the productivity growth of domestically owned firms, using Japanese firm-level data for the period 2000-2007. The data are taken from the comprehensive annual survey by the Japanese government, which covers firms in the manufacturing industries, wholesale and retail trade, information services, business services, and other service industries. Although many previous studies have conducted productivity analyses on foreign multinationals and domestic firms in the manufacturing sector, such analyses for the service sector are still scarce. This paper focuses on the service sector, taking account of the importance of foreign entry in this sector, where cross-border trade is occasionally difficult and firms are therefore less likely to be exposed to international competition. The analysis of this paper reveals that foreign multinationals perform better than domestically owned firms in many sectors. Although the productivity levels of the former tend to be higher than the latter, a significant difference in productivity growth rates is not confirmed. Moreover, a foreign presence in a particular industry tends to be viewed as a factor that negatively affects the productivity growth rate of domestically owned firms in the same industry, when firm-fixed effects are controlled for. However, firms that are catching up with frontier productivity can receive positive FDI spillovers, implying that foreign entry accelerates the catch-up phenomenon.

Information Technology and the Japanese Economy

In this paper we compare sources of economic growth in Japan and the United States from 1975 through 2003, focusing on the role of information technology (IT). We have adjusted Japanese data to conform to U.S. definitions in order to provide a rigorous comparison between the two economies. The adjusted data show that the share of the Japanese gross domestic product devoted to investment in computers, telecommunications equipment, and software rose sharply after 1995. The contribution of total factor productivity growth from the IT sector in Japan also increased, while the contributions of labor input and productivity growth from the Non-IT sector lagged far behind the United States. Our projection of potential economic growth in Japan from for the next decade is substantially below that in the United States, mainly due to slower growth of labor input. Our projections of labor productivity growth in the two economies are much more similar.

Intangible Investment in Japan: New Estimates and Contribution to Economic Growth

The purpose of this paper is to measure intangible assets, to construct the capital stock of intangible assets, and to examine the contribution of intangible capital to economic growth in Japan. We follow the approach of Corrado, Hulten, and Sichel (2005, 2006) to measure intangible investment using the 2008 version of the Japan Industrial Productivity (JIP) Database. We find that the ratio of intangible investment to GDP in Japan has risen during the past 20 years and now stands at 11.6%, which is lower than the ratio estimated for the United States in the early 2000s. The ratio of intangible to tangible investment in Japan is also lower than equivalent values estimated for the United States. In addition, we find that, in stark contrast with the United States, where intangible capital grew rapidly in the late 1990s, the growth rate of intangible capital in Japan declined from the late 1980s to the early 2000s. In order to examine the robustness of our results, we also conducted a sensitivity analysis and found that the slowdown of the contribution of intangible capital deepening to economic growth and the recovery in Multi-Factor Productivity (MFP) growth from the second half of the 1990s observed in our base case remain unchanged even if we take on-the-job training and Japanese data with respect to investment in firm-specific resources into account.intangible investment, labor productivity, growth accounting

The Industry Origins of Japanese Economic Growth

This paper presents new data on the sources of growth for the Japanese economy over the period 1960- 2000. The principal innovation is the incorporation of detailed information for individual industries, including those involved in the production of computers, communications equipment, and electronic components as information technology equipment. We show that economic growth is dominated by investments and productivity growth in information technology, both for individual industries and the economy as a whole. We also show that the revival of total factor productivity growth accounts for the modest resurgence of the Japanese economy since 1995.

The McKinsey Global Institute Productivity Studies: Lessons for Canada

The McKinsey Global Institute (MGI) is a think tank based in Washington, D.C. founded in 1990 with the objective of analyzing international productivity levels from both economic and management perspectives. MGI uses microeconomic analysis on a sector-by-sector level to study the effects that industry decisions ultimately have on national productivity. For the most part the productivity drivers identified by MGI can be grouped into three broad areas: competitive factors (concentration, trade protection, deregulation, minimum wages, work rules, and zoning laws); managerial factors (best practice, human capital, capital intensity, and information technology); and demand factors (average income, cyclical factors, and consumer preferences). This paper examines these factors in an attempt to shed light on the causes of Canada-U.S. productivity differences at the industry level. Competitive factors may explain the poor productivity performance of the Canadian financial and cultural service industries relative to their U.S. counterparts, and likewise may explain the high productivity levels of some natural resource industries in Canada relative to the United States. Managerial factors, especially the implementation of new technologies and related processes, may be important in explaining the poor productivity growth in Canada relative to the United States in service industries such as retail trade. Given the similarities between Canada and the United States, the findings of the MGI studies cannot be indiscriminately applied to Canada-U.S. productivity differences at the industry level. However, the MGI studies do put forward a number of useful working hypotheses for analyzing these differences.Productivity, Productivity Growth, Industry, Industry Studies, McKinsey Global Institute, MGI, Concentration, Competition, Retail Trade, Wal-Mart, Regulation, Banking, Airlines, Best Practice, Deregulation

Do Out-In M&As Bring Higher TFP to Japan?: An Empirical Analysis Based on Micro-data on Japanese Manufacturing Firms

This paper compares the performance of foreign-owned and domestically-owned firms, using micro data on Japanese firms in the manufacturing sector for the period 1994-2000. The overall comparison between foreign-owned and Japanese companies shows that foreign-owned companies enjoyed 5% higher TFP as well as higher earnings and returns on capital. They also displayed a higher capital-labor ratio and higher R&D intensity. Reflecting their higher TFP and labor-saving production patterns, foreign-owned companies showed higher labor productivity and wage rates as well. By estimating Probit models, we found that foreign firms acquire Japanese firms with higher TFP levels and higher profit rates. In contrast, in-in M&As seem to have the characteristics of rescue missions. Small firms with a higher total liability/total asset ratio tend to be chosen as targets of in-in M&As. We also estimated the dynamic effects of M&As on target firms. The results indicate that out-in M&As improve target firms' TFP level and current profit/sales ratio. Compared with in-in M&As, out-in M&As bring a larger and quicker improvement in TFP and the profit rate but no increase in target firms' employment two years after the acquisition.FDI, TFP, in-in M&A, out-in M&A

Estimates of Total Factor Productivity, the Contribution of ICT, and Resource Reallocation Effects in Japan and Korea

The purpose of our study is to identify the sources of economic growth based on a KLEMS model for Japan and Korea. We also identify the growth contribution of ICT assets and resource reallocation effects in the two economies. Both Japan and Korea enjoyed high TFP growth in ICT-producing sectors but suffered low TFP growth in ICT-using sectors. For Japan, we find that the main factor underlying the Lost Decade is the slow-down in TFP growth. We also found that Korea's TFP growth was slow until the Asian financial crisis of 1997-1999 but then accelerated after the crisis. It seems that before the crisis, Korea was following a catch-up process with developed economies that was predominantly input-led and manufacturing-based, as documented by Timmer (1999) and Pyo (2001). However, through the drastic economic reform undertaken during the crisis, Korea seems to have shifted to a new phase of economic growth since the end of the 1990s. TFP growth rates, especially those in manufacturing sectors, have substantially increased in post-crisis Korea. Both in Japan and Korea, productivity in service sectors is much lower than in manufacturing. The reason probably is excessive regulation and a lack of competition in service sectors. And these factors seem to have impeded introduction of ICT in service industries. As for ICT capital accumulation, the ICT investment/GDP ratio of Korea is higher than that of Japan. Especially, the speed of ICT accumulation in the ICT sector in Korea is much faster than that in Japan. Both in Japan and Korea, the largest component in ICT investment is computing equipment. In the case of resource reallocation across sectors, the reallocation effect of capital input was negligible or negative for most periods both in Korea and Japan. After the financial crisis of 1997-99, the resource allocation effect of capital in Korea remained negative, although the size of the negative effect declined. On the other hand, the reallocation effect of labor input was positive for most periods both in Korea and Japan.

"Does Natural Selection Mechanism Still Work in Severe Recessions? --]Examination of the Japanese Economy in the 1990s ---"

This paper investigates whether or not the natural selection mechanism (NSM) of economic Darwinism works in severe recessions. Although standard firm models imply the importance of NSM in an economy by showing firm's rational behavior on entry, surviv-ing, and exit leads to macro-level TFP growth, there is almost no evidence to demonstrate NSM works even in severe recessions and depressions. Based on micro data of the Basic Survey of Japanese Business Structure and Activities (BSJBSA) by Ministry of Economy, Trade and Industry, we construct a comprehensive firm-level panel dataset for Japan from 1994 to 1998, especially designed for the analysis of a firm's entry, survival, and exit and its relationship with TFP. Empirical results show that efficient firms in terms of TFP quit while inefficient ones survived in the banking-crisis period of 1996-1997. Besides, this phenomenon is mainly observed for new entrants and contributes substantially to a fall in macro TFP after 1996. These facts strongly suggest malfunctioning of NSM in severe recessions.