Technical Progress and Returns to Scale in Japanese Manufacturing Industries Before and After the Burst of the 1990 Financial Bubble
Empirica: Journal of Applied Economics and Economic Policy, 34 (3), 2007, 247-271
Posted: 5 Jun 2013
Date Written: May 17, 2006
An important economic policy issue is to ascertain when and if technical change (TC) is driving measured growth in productivity. Was this the case for Japan during the late 1980s when a massive ﬁnancial bubble was being formed? This paper addresses this question, after ﬁrst further developing methods needed for this purpose. The movement of ﬁrms’ TC is of particular policy interest to Japan whose economy has been suffering from a prolonged recession for more than a decade since the burst of the bubble in 1990. In the period of time immediately prior to the burst of the bubble, our estimation results show a signiﬁcant drop in technical progress. What we believe these results reﬂect is that Japanese manufacturing ﬁrms made excessive investments in production inputs in the years when the bubble was being formed. This excessive investment in inputs did not contribute positively to TC and hence the measured productivity and economic growth of the bubble period in the late 1980s was unsustainable.
Keywords: Technical change, Total factor productivity, Economies of scale, Japan, Index number method
JEL Classification: O3, O47, O53, O49
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