Korea-Japan Workshop on the Industrial Productivity Database

Sectoral Productivity and Economic
Growth in Japan, 1970-98:
An Empirical Analysis Based on the JIP
Database
February 28, 2004

Kyoji Fukao
Tomohiko Inui
Hiroki Kawai
Tsutomu Miyagawa

1. Macro Growth Accounting 1
We assume that a macro production function attime t can be expressed as the following functionof capital input Kt, labor input Lt, and an index of
the technology level Tt.
Yj,t = F(Kt, Lt, Tt)(1)where Yt denotes real GDP at time t. We assume
constant returns to scale. The capital input Kt isderived by an aggregation of several types ofassets, structures and equipment. The labor
input Lt is an aggregate of the number of workers
cross-classified by sex, age, and educational
attainment.

1. Macro Growth Accounting 2
By differentiating the production function(1) over time, we get
dlnYt = savk,t dlnKt + savl,t dlnLt + dlnAt
where dlnYt, dlnKt, and dlnLt denote lnYtlnYt-1, lnKt-lnKt-1, and lnLt-lnLt-1 respectively.
savk,t (savl,t) denote the average of costshare of capital (labor) at time t-1 and timet. savk,t is defined bysavk,t=(wk,tKt/ptYt+ wk,t-1Kt-1/pt-1Yt-1)/2
where wk,t denotes service price of capitalat time t.

1. Macro Growth Accounting 3•

dlnAt denotes (∂lnF/∂lnT)dlnTt, thecontribution of technology
improvement lnTt-lnTt-1 to the increasein production at the macro-level.

Factors contributing to the fall in Japan’s growth rate:1) decline in capital accumulation ratio, 2) decrease inlabor input (numbers & hours), 3) decline in laborquality growth
Sources of Economic Growth: US-Japan Comparison
Panel A. The Result of Growth Accounting for the US Economy by Jorgenson et al (2002): 1973-2000

Real GDP GrowthaMan-hour growthb

Labor
productivity(GDP/man-hour)
growthc=a-b

TFP growthd=c-e-f(Annual Rate, %)Contribution oflabor quality
growtheContribution of capital sevices/man-hour growth
Sub-total

Contribution of
IT capital

Contribution of
non-IT capital

f=g+hgh

1973-1995

2.78%

1.44%

1.33%

0.26%

0.27%

0.80%

0.37%

0.43%

1995-2000

4.07%

1.99%

2.07%

0.62%

0.21%

1.24%

0.87%

0.37%

Jorgenson et al. (2002)
Panel B. The Result of Growth Accounting for the Japanese Economy: 1973-1998

Real GDP GrowthaMan-hour growthb

Laborproductivity(GDP/man-hour)
growthc=a-b(annual rate, %)TFP growthd=c-e-f

Contribution oflabor quality
growtheContribution of capital services/man-hour growth
Sub-total

Contribution ofIT capital

Contribution of
non-IT capital

f=g+hgh

1973-83

3.56%

1.53%

2.03%

-0.30%

0.65%

1.68%

0.16%

1.52%

1983-91

3.94%

1.79%

2.15%

0.40%

0.46%

1.29%

0.37%

0.92%

1991-98

1.25%-0.08%

1.34%

0.03%

0.21%

1.10%

0.33%

0.76%

0.52%

0.63%

1995-98
Calculated from JIP database.

4. TFP Growth at the 3-Digit Industry Level
For the growth accounting of 84 sectors we use the following
equation.
dlnAj,t = dlnQj,t – (savk,j,tdlnZ j,tKj,t +savL,j,tdlnLj,t+ savM,j,tdlnMj,t)Where dlnAj,t denotes the TFP growth rate from time t-1 to t insector j, while dlnQj,t denotes the growth rate of real grossoutput. Kj,t, Lj,t, and Mj,t denote the capital, labor, and realintermediate input in sector j at time t. Mj,t is a composite index
of 84 commodities and services, which is based on the annual
real IO tables of the JIP Database. Zj,t denotes the capacity
utilization rate. savf,j,t denote the average of cost share of factor f
in sector j at time t-1 and time t.

TFP growth accelerated inindustries – retail, wholesale,broadcasting,communications, banking,insurance, real estate andother services to individuals– where restrictions wererelaxed.

Contribution of individual industries to TFP growth inmacro-economy: annual rate by industry%

0.800%

1973-830.600%

1983-91
1991-980.400%
0.200%
0.000%-0.200%-0.400%Total all industries

Imputed rent

Public service, government & others

Business services

Personal services

Banking, insurance, real estate

Retail & wholesale

Broadcasting & communications

Transportation

Construction & building

Power, gas, water utilities

All manufacturing

Mining-0.600%Agriculture, forestry, fisheries

Nakanishi & Inui (2003):
Significant acceleration ofTFP growth observed inderegulated industries.