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

University of Alberta School of Business Research Paper No. 2013-299

Posted: 5 Jun 2013

See all articles by Takanobu Nakajima

Takanobu Nakajima

Keio University - Faculty of Business and Commerce

Alice Orcutt Nakamura

University of Alberta - School of Business

Emi Nakamura

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Masao Nakamura

University of British Columbia (UBC) - Sauder School of Business

Date Written: May 17, 2006

Abstract

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

Suggested Citation

Nakajima, Takanobu and Nakamura, Alice Orcutt and Nakamura, Emi and Nakamura, Masao, Technical Progress and Returns to Scale in Japanese Manufacturing Industries Before and After the Burst of the 1990 Financial Bubble (May 17, 2006). Empirica: Journal of Applied Economics and Economic Policy, 34 (3), 2007, 247-271, University of Alberta School of Business Research Paper No. 2013-299, Available at SSRN: https://ssrn.com/abstract=2274450

Takanobu Nakajima (Contact Author)

Keio University - Faculty of Business and Commerce ( email )

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

Alice Orcutt Nakamura

University of Alberta - School of Business ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada

Emi Nakamura

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Masao Nakamura

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8434 (Phone)
604-822-8477 (Fax)

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