Abstract

http://ssrn.com/abstract=958157
 
 

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A Comment on Nishimura, Nakajima, and Kiyota's Does the Natural Selection Mechanism Still Work in Severe Recessions? Examination of the Japanese Economy in the 1990s


Tae Okada


Osaka University - Graduate School of Economics

Charles Yuji Horioka


University of the Philippines, Diliman; National Bureau of Economic Research (NBER); Osaka University - Institute of Social and Economic Research (ISER)

January 2007


Abstract:     
Nishimura, Nakajima, and Kiyota (2005) analyze the entry/exit behavior patterns of Japanese firms during the 1990s and find that relatively efficient (high total factor productivity (TFP)) firms exited while relatively inefficient (low TFP) firms survived during the banking-crisis period of 1996-97. They conclude from this finding that the natural selection mechanism (NSM) apparently malfunctions during severe recessions, but we offer a much more plausible interpretation: the NSM continued to function effectively even during this period, but aberrant banking practices (in particular,forbearance lending(evergreening) and the forcible withdrawal of loans and/or the reluctance to lend) caused a shift in the type of natural selection from directional selection to disruptive selection, with the most efficient (highest TFP) firms as well as the least efficient (lowest TFP) firms being favored and firms of intermediate efficiency and TFP being selected against.

Number of Pages in PDF File: 5

Keywords: Total Factor Productivity, Entry and Exit, Natural Selection, Natural Selection Mechanism, Directional Selection, Disruptive Selection, Diversifying Selection, Evolution, Banking Crisis, Forbearance Lending, Forcible Withdrawal of Loans, Reluctance to Lend, Credit Crunch, Recession, Japanese Economy

JEL Classification: D21, D24, O47, L11

working papers series


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Date posted: January 22, 2007  

Suggested Citation

Okada, Tae and Horioka, Charles Yuji, A Comment on Nishimura, Nakajima, and Kiyota's Does the Natural Selection Mechanism Still Work in Severe Recessions? Examination of the Japanese Economy in the 1990s (January 2007). Available at SSRN: http://ssrn.com/abstract=958157 or http://dx.doi.org/10.2139/ssrn.958157

Contact Information

Tae Okada
Osaka University - Graduate School of Economics ( email )
1-7 Machikaneyama
Toyonaka, Osaka, 560-0043
Japan
Charles Yuji Horioka (Contact Author)
University of the Philippines, Diliman ( email )
Encarnacion Hall
F. M. Guerrero corner S. Osmena Sts
U.P. Diliman, Quezon City
Philippines
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Osaka University - Institute of Social and Economic Research (ISER) ( email )
6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan
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