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Ebook The Industry Origins of Japanese Economic Growth

Our objective in this paper is to quantify the sources of Japanese economic growth for 1960-2000, using data for individual industries. Industry-level data enable us to trace the sources of Japanese economic growth to its industry origins. A novel feature of these data is that we include the IT-producing industries – Computers, Communications Equipment, and Electronic Components. We are able to assess the relative importance of productivity growth and capital accumulation at both industry and economy wide levels. We divide productivity growth between the IT and Non-IT sectors and allocate capital accumulation between IT and Non-IT capital.

Productivity growth in the IT-producing industries has steadily risen in importance, generating a relentless decline in the prices of information technology equipment and software. This decline in IT prices is rooted in developments in technology that are widely understood by technologists and economists, particularly the continuous improvement in the performance/price ratio of semiconductors captured by Moore’s Law. Information technology has reduced the cost and improved the performance of products and services embraced by businesses, households, and governments. The enhanced role of investment in IT is a conspicuous feature of the Japanese economy and a growth revival is under way in many important IT-using industries.

The mechanisms for diffusion of advances in IT are two-fold. First, advances in semiconductors generate continuing price reductions for a given level of performance. These price reductions drive demands for intermediate inputs in semiconductor-using industries such as computers, communications equipment, and a host of others. Second, the industries that use semiconductors as inputs generate further price declines that drive investments in IT equipment like computers and telecommunications equipment. Advances in equipment production augment the downward pressure on prices, steadily redirecting the rising IT investment flow toward its most productive uses.

Our major goal is to characterize the role of information technology in the Japanese economy. We also focus on the impact of IT during the long Japanese recession of the 1990’s. There are three main challenges in isolating and analyzing the IT-producing industries in Japanese economy. The first is that the IT-producing industries are below the two-digit industrial classification used in previous studies of Japanese productivity, such as Jorgenson (1995), Nomura (2004a), and Fukao, Inui, Kawai, and Miyagawa (2004). In this paper, we have generated detailed data for these industries in order to characterize IT-production as precisely as possible. This enables us to quantify the impact of IT production on the Japanese economy more accurately and represents a substantial advantage over earlier studies using the broader industry aggregates.

The second challenge is the capitalization of investment in software in the Japanese national accounts. The official national accounts treat expenditures for custom software, mineral exploration, and plant engineering as gross fixed capital formation (GFCF) in intangible assets. Own-account software and pre-packaged software have not been capitalized, although this is recommended by the United Nations (1993) System of National Accounts 1993 (1993 SNA). In this paper, we capitalize own-account software and pre-packaged software and rebalance the time-series of input-output tables given in Nomura (2004b). The methodology is similar to the one adopted by the Bureau of Economic Analysis (BEA) in the benchmark revision of the U.S. national accounts in 2003.

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