GEP 10/04: Globalisation, Multinationals and Productivity in Japan's Lost Decade

Summary

Japan’s ‘Lost Decade’ is in part due to sluggish within plant productivity growth and a lack of entry by new firms. Multinationals have not ‘hollowed out’ the economy.

Abstract

Myriad hypotheses have been advanced to explain the dismal performance of the post-1990 Japanese economy. In this paper we use plant and firm data to investigate the issue. The low rate of productivity growth in Japan is also often seen as a product of Japanese MNEs offshoring production and shutting plants that are relative to others in their industry, high productivity. We find that this is true, plants shut by MNEs are relatively more productive than the industry average, but they are generally weaker elements of the MNE more generally. This behaviour is also not distinct to MNEs. Our analysis suggests that the rate of productivity growth within firms is also partly a consequence of low entry and exit rates. Generally we find that the determinants of productivity change are similar to those found for other countries, but that productivity improvement is lower in industries in which globalisation is higher. The low rate of entry and exit in Japan therefore means that this affects more firms than would otherwise have been the case.

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Authors

Tomohiko Inui, Richard Kneller, Toshiyuki Matsuura and Danny McGowan

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