Industrial Policy Cuts Two Ways: Evidence from Cotton Spinning Firms in Japan, 1956–1964

Posted: 7 May 2009

See all articles by Kozo Kiyota

Kozo Kiyota

Keio University - Keio Economic Observatory

Tetsuji Okazaki

University of Tokyo - Faculty of Economics

Date Written: May 3, 2009

Abstract

A number of studies have revealed that the effect of industrial policy on productivity growth is negative. Is this because industrial policy fails to control the activities of firms, or because it can effectively control them? This paper attempts to answer these questions, using firm-level data from the cotton spinning industry in Japan for the period 1956–64. It has been determined that industrial policy cut two ways during this period. Industrial policy effectively controlled the output of cotton spinning firms, which contributed to the establishment of a stable market structure during the period. On the flip side, such policy constrained the reallocation of resources from less productive large firms to more productive small firms. Combined with the negative productivity growth in large firms during this period, industrial policy resulted in negative industry productivity growth.

Keywords: Industrial Policy, Regulation, Reallocation, Productivity Growth, Endogeneity

JEL Classification: D21, D4, L5, N0, K2

Suggested Citation

Kiyota, Kozo and Okazaki, Tetsuji, Industrial Policy Cuts Two Ways: Evidence from Cotton Spinning Firms in Japan, 1956–1964 (May 3, 2009). Journal of Law and Economics, Vol. 53, 2010. Available at SSRN: https://ssrn.com/abstract=1398325

Kozo Kiyota (Contact Author)

Keio University - Keio Economic Observatory ( email )

Mita 2-15-45, Minato-ku
Tokyo, 108-8345
Japan

Tetsuji Okazaki

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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