Estimating Production Functions with R&D Investment and Endogeneity

This study analyses the production function estimation when there is an unobservable idiosyncratic productivity shock and the series of the productivity shock follows a first-order endogenous Markov process which is controlled by R&D investment. The production function approach, in general, suffers from endogeneity problems when there are determinants of production which are not observed by the econometrician but are observed by the manager of a firm. To control for this problem, recently developed econometric methods are applied to the production function estimation. The results show that there is a possibility that other estimation methods such as OLS estimation and fixed effect estimation underestimates the contribution of capital. The results also suggest that the rate of return to R&D varies considerably across industries and within an industry.

Plant Turnover and TFP Dynamics in Japanese Manufacturing

This study analyzes the cause of the slowdown in Japan's TFP growth during the 1990s. Many preceding studies, examining the issue at the macro- or industry-level, have found that the slowdown was primarily due to the stagnation in TFP growth in the manufacturing sector. Using establishment level panel data covering the entire sector, we investigate the causes of the TFP slowdown and find that the reallocation of resources from less efficient to more efficient firms was very slow and limited. This "low metabolism" seems to be an important reason for the slowdown in Japan's TFP growth.

An International Comparison of the TFP Levels and the Productivity Convergence of Japanese, Korean, Taiwanese and Chinese Listed Firms

In this paper, we analyzed productivity catching up at the firm level in the Japanese, Korean, Taiwanese and Chinese manufacturing sector using the distance from the global technological frontier as a direct measure of the potential for technological frontier. We also examined the role of the absorption capacity for the technological catch-up by including the variables, such as R&D expenditure and foreign ownership in our empirical estimation model. Our main results can be summarized as follows. First, although Japanese firms enjoy the highest average TFP level in many industries, their TFP growth rate has been relatively low during the past two decades. Taiwanese and Korean firms have achieved considerably high TFP growth in certain industries, and the some firms in the industries almost caught up or exceeded the Japanese firms' TFP level. The average TFP level of Chinese firms is still much lower than that of Japanese, Korean and Taiwanese firms in many industries. Second, in Korea, the TFP levels of low-performing firms are approaching those of the national frontier firms at a more rapid pace than in other countries. In addition, Korean firms try to catch up the global frontier once they reached to the national frontier level TFP. Chinese firms are very slow in catching up and the only engine of the knowledge creation is firms located in the trade-oriented coast. Third, in the all four countries, the speed of the convergence of the firms far from the national frontier is faster than the firms near the frontier.

Management Practices and Firm Performance in Japanese and Korean Firms

The US economy had accelerated economic growth since the late 1990s. At first, many economists and policy makers believed that the rapid growth in the IT industry and IT investment contributed to the acceleration in US economic growth and many advanced countries supported the IT industry and IT investment in their own countries. However, the gap in rates of economic or productivity growth between the US and other advanced countries has remained even in the early 2000s. Since then, many economists have paid attention to the complementary role in intangible assets in productivity growth, that is, they started to believe that without intangible assets, the IT assets does not contribute to productivity growth at the firm and aggregated level.Japanese firms, Korean firms, management practices

Embodied Technological Progress and the Productivity Slowdown in Japan

Concerns over the rise in the vintage of capital in the Japanese economy have focused attention on the technological progress embodied in capital. In this paper, we derive the theoretical relationship between the rate of technological progress embodied in capital, the obsolescence rate of capital, and the average vintage of capital, then we estimate these rates by using firm-level panel data from the Ministry of Economy, Trade and Industry (METI) Basic Survey of Japanese Business Structure and Activities in the period between 1997 and 2002. To measure the obsolescence rate of capital by estimating the production function, it is necessary to construct a capital stock series that takes only physical depreciation into account for each vintage capital held by each firm. To do that, we prepared industry-specific patterns of the physical depreciation ratio of capital goods, based on the pattern of the physical depreciation ratio of each type of capital goods by obtaining information from the U.S. Bureau of Labor Statistics (BLS), and the Japan Industrial Productivity Database (JIP) 2006's investment matrices cross-classified by types of capital goods and industries. We applied these industry-specific patterns of the physical depreciation ratio of capital goods to the individual firms' investment series, constructing a capital stock series in each firm. We measured the obsolescence rate by estimating the production function, which is similar to the one employed in Sakellaris and Wilson (2004). We added several control variables to their equations. The estimated obsolescence rate of machinery and equipment is found to be between 8 and 22 percent per annum, which is very close to the estimated ratios in other previous research using the production function. This estimation result implies that the average rate of technological progress embodied in machinery and equipment is between 0.2 and 0.4 percent in Japan. The average vintage of capital in the manufacturing industry in the 1990s was estimated to increase by almost two years, because of weak investment during that decade, and it has the effect of lowering the rate of productivity growth in the industry by 0.4 to 0.8 percentage points.

Kigyo jigyosho no sannyu-taishutsu to sangyo level no seisansei [in Japanese]

TFP, Labor productivity, Micro data, Entry, Exit

A Comparative Analysis of Productivity Growth and Productivity Dispersion: Microeconomic Evidence Based on Listed Firms from Japan, Korea, and China

Utilizing the firm-level dataset, this study aims to explore differences in firm-level productivity and growth between Japan, Korea, and China, while at the same time illuminating the mechanism that has driven the narrowing in the productivity gap that can be observed. We pursue two strategies. First, we compare the firm-level TFP distribution of major industries in these three countries over time to examine catch-up patterns within and across industries. Second, in order to examine patterns of technology diffusion across these three countries, we conduct a regression analysis on TFP convergence to the national frontier and to the global frontier. Our main results can be summarized as follows. First, although Japanese firms enjoy the highest average TFP level in many industries, their TFP growth rate has been relatively low during the past two decades. Korean firms have achieved considerable TFP growth in certain industries. The average TFP level of Chinese firms is still much lower than that of Japanese and Korean firms in many industries. Second, within-industry dispersion of TFP levels is very small for Japanese firms. While the within-industry ranking of TFP levels hardly changes in the case of Japan, fluctuations in the ranking are relatively frequent in the case of Korea. Third, in Korea, the TFP levels of low-performing firms are approaching those of the national frontier firms at a more rapid pace than in Japan

Acquisitions by Business Group and Technology Transfer

Two important opportunities for accelerating the growth of newly established firms are initial public offerings and acquisitions. This study focuses on the acquisition of a firm and its subsequent transformation into a subsidiary by business groups and investigates how such governance facilitates technology transactions (i.e., transfer of patent rights) and firm growth in Japan. The analysis reveals that such acquisitions can lead to increased technology transactions even when the transactions directly related to the acquisition are excluded and the transactions with firms outside the business group are included. However, the increase in technology transactions is limited mainly to wholly owned subsidiaries. The transfer of patent rights to a subsidiary is accompanied by an improvement in its sales, R&D, and productivity, controlling for the increase in its capital base. The sales and other performance of the business group also improve with the number of acquisitions

The Quantitative Assessment of Organization Capital (Japanese)

Globalization and IT revolution in the 1990s requires that firms make a reorganization to survive in the more competitive world. There are several approaches to assess the organization capital. Using an optimizing firm model assuming that a firm holds multiple assets suggested by Yang and Brynjolfsson (2001) and Cummins (2003), we examine whether the organization capital is accumulated with investment in several types of assets. In contrast to Cummins (2003)'s results, we find the accumulation of organization capital associated with investment in R&D asset and marketing asset. Using these results and following Basu, Fernald, Oulton, and Srinivasan (2003), we measure the contribution of organization capital to the conventional total factor productivity (TFP) growth. Its contribution dominates about 3% of TFP growth in the middle term.