Japanese Productivity Growth in International Perspective - Productivity Growth in the Service Sector

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Japanese Productivity
Growth in International
Perspective
- Productivity Growth in the Service Sector
and the Role of Intangible Assets RIETI Policy Symposium
June 22, 2007
Tsutomu Miyagawa (RIETI Faculty Fellow and Gakushuin University)
Kyoji Fukao (RIETI Faculty Fellow and Hitotsubashi University)
Konomi Tonogi (Hitotsubashi University)
1
Contents
1 The Purpose of the Presentation
2 The Recovery of the Japanese Economy
3 Why Did Japan’s Economic Growth Slow
Down?
4 Contribution of ICT Capital to the
Economic Growth
5 The Role of Intangible Assets
6 Policy Implications
2
1. The Purpose of the Presentation (1)
• Productivity growth is the primal economy policy
agenda under the declining population in Japan.
• We are able to compare Japanese productivity
growth to those in other developed countries by
using EUKLEMS database
( http://www.euklems.net/ ) which was
constructed by van Ark, economists in
Groningen University, and economic institutions
in EU countries. We also joined the EU KLEMS
consortium and supplied original data of Japan
Industry Productivity database for the EU
KLEMS project.
3
1. The Purpose of the Presentation (2)
• As for productivity issues, many economists
have recognized that intangible investment is a
key factor for productivity growth in ICT using
industries.
• Following Corrado, Hulten and Sichel (2005;
2006), we measure of intangible investment in
Japan.
4
2. The Recovery of the Japanese
Economy (1)
• The Japanese economy has been
recovering since 2002 following more than
a decade of stagnation.
• The current recovery was brought about
by growth in corporate investment and
exports.
• The expansion period is likely to be the
longest after the World War II.
5
2. The Recovery of the Japanese
Economy (2)
• However, the growth rate during the
current expansion is the lowest in 30 years.
• The average growth rate since 2000 is
1.5%, which is lower than Japan’s
estimated potential growth rate (2%).
• Among the major developed countries,
Japan’s growth rate is the lowest.
6
GDP Growth in Japan’s Business Cycles
Expansion
1980:1-1983:1
1983:1-1985:2
1985:2-1986:4
1986:4-1991:1
1991:1-1993:4
1993:4-1997:1
1997:1-1999:2
1999:2-2000:4
2000:4-2002:1
2002:1-2007:1
Recession
2.5
3.6
3.4
5.4
0.3
2.9
-0.5
2.8
-2.4
2.1
7
Growth Accounting for the Market Sector in Japan, the US, and
the Major EU Economies
1995-04
4.0
3.5
3.5
3.0
3.0
2.5
2.5
1.0
-1.0
Source: EU KLEMS Database, March 2007.
US 95-04
-0.5
Gross value
added growth
Italy 95-04
US 80-95
-1.0
Italy 80-95
0.0
UK 80-95
0.0
France 80-95
0.5
Germany 80-95
0.5
-0.5
Contribution of
labor input
growth
UK 95-04
1.0
1.5
France 95-04
1.5
Contribution of
capital input
growth
2.0
Germany 95-04
2.0
Contribution of
TFP growth
Japan 95-04
annual average,%
4.0
Japan 80-95
annual average,%
1980-95
8
3. Why Did Japan’s Economic
Growth Slow Down? (1)
• According to a growth accounting analysis
of the major six developed countries, only
the US accomplished an exceptional
acceleration in TFP growth after 1995.
• The EU countries maintained their rate of
growth through the accumulation of capital
and an increase in labor input.
• In Japan, all growth factors declined after
1995.
9
3. Why Did Japan’s Economic
Growth Slow Down? (2)
• TFP growth in Japan’s ICT industry registered the highest
rate of TFP growth among the major developed economies
for the period from 1995 to 2004.
• However, this TFP growth in the ICT industry did not
contribute much to total TFP growth, because the labor input
share of the ICT industry in the economy as a whole is only
about 5%.
• There is a large gap in TFP growth in the service sector
between the US and the other countries, including Japan.
• Especially in the retail sector and financial intermediation,
TFP growth in the US is extremely high.
10
TFP growth in ICT industries (1995-2004)
8
7
6
%
5
4
3
2
1
0
Japan
Germany
France
UK
Italy
US
11
TFP growth in retail industry (1995-2004)
5
4
3
%
2
1
0
-1
-2
Japan
Germany
France
UK
Italy
US
12
TFP growth in financial intermediation (1995-2004)
4
3
%
2
1
0
-1
Japan
Germany
France
UK
Italy
US
13
3. Why Did Japan’s Economic
Growth Slow Down? (3)
• It is also important to note that labor
productivity levels in Japanese industries,
with the exception of a few manufacturing
industries, were much lower than those in
the US.
14
Labor Productivity: Japan-US Comparison
0
1
2
3
Economy overall
Agriculture, fisheries and forestry
Mining
Food products
Textile products
Pulp, paper and wood products
Petroleum and chemical products
Stone, clay and ceramic products
Metals
Metal products
General machinery
Electric machinery
Precision machinery
Transportation machinery
Miscellaneous manufacturing products
Electricity, gas and water supply
Construction
Wholesale and retail
Hotels and eating and drinking places
Transportation
Communication
Finance and insurance
Real estate
Other business services
Education
Medical services
Other services for individuals
Public services
Source: JEF-JCER (2007).
Japan/US 1995
Japan/US 2002
15
4. Contribution of ICT Capital Input
to Economic Growth (1)
• Previous studies:
→Jorgenson (2001) and Jorgenson and Stiroh (2000): ICT
investment accelerated economic growth in the US in the
second half of the 1990s.
→Van Ark et al. (2003): Due to the slow growth in ICT
investment, economic growth in the EU countries lagged
behind that in the US.
→Shinozaki (1999), Miyagawa, Ito, and Harada (2004), and
others: Slow productivity growth in Japan was caused by
the lack of the accumulation in ICT assets.
16
4. Contribution of ICT Capital Input
to Economic Growth (2)
We compare ICT investment of the six major developed countries using the
EU KLEMS database.
We found that the six countries can be categorized into the following three
groups:
(1)
(2)
(3)
Front runners: the US and the UK→16-17% growth in ICT capital
service input per annum from 1995 to 2004.
Intermediate group: Germany and France→12% growth per annum
from 1995 to 2004.
Laggards: Japan and Italy →ICT capital service input level in 2004
was less than twice as high as the 1995 level →Japan did not catch
up the trend of downsizing in the 90s.
The contribution of ICT capital service input to economic growth in
Japan was lower than in the other countries except Italy.
17
Growth in ICT service (Market Economy)
450
400
350
US
UK
Germany
Italy
France
250
200
150
100
50
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
1995=100
300
Japan
EU10
18
Contributions of ICT Capital Service Input to Economic Growth
1995-2004
Japan
US
France
Germany
Italy
UK
0.3
0.8
0.5
1.0
0.2
1.0
Electrical machinery, post and
communication
1.0
1.5
0.8
2.7
0.2
2.7
Manufacturing, excluding electrical
0.1
0.4
0.3
0.5
0.1
0.5
Other goods-producing industries
0.1
0.2
0.2
0.1
0.0
0.1
Distribution services
0.1
1.0
0.3
0.8
0.2
0.8
Finance and business services
1.2
1.2
1.0
1.8
0.7
1.8
Personal and social services
0.2
0.4
0.0
0.5
0.3
0.5
Market economy total
Source: EU KLEMS Database, March 2007.
19
4. Contribution of ICT Capital Input
to Economic Growth (3)
• Retail industry: The increase of ICT capital
input in the US was extremely high. In
contrast, the growth rate of ICT capital
service input in Japan was very low.
• Financial intermediation sector: The UK
showed the highest accumulation of ICT
capital. ICT capital accumulation in the
other countries except Italy was almost the
same.
20
Growth rate in ICT service (Retail)
500
450
400
US
EU10
UK
Germany
Italy
France
300
250
200
150
100
50
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
1995=100
350
Japan
21
Growth rate in ICT service (Financial intermediation)
400
Japan
EU10
Germany
Italy
350
300
US
UK
France
200
150
100
50
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
1990
1995=100
250
22
5. The Role of Intangible Assets (1)
• TFP growth seems to be positively correlated to
the growth rate of ICT capital.
• However, the extent of the effects of ICT capital
on TFP growth differs (e.g., US vs. UK).
• Especially in financial intermediation, TFP
growth in Japan was lower than in the US,
although the growth rate of ICT capital was
about the same in both countries.
23
TFP groath rate and growth rate of ICT capital sevice (Market economy)
20
2.0
TFP growth
1.5
18
Growth rate of ICT capital service
16
14
1.0
10
0.5
%
%
12
8
0.0
Japan
US
EU10
France
Germany
Italy
UK
6
4
-0.5
2
-1.0
0
24
TFP growth and growth rate in ICT capital service
(Financial intermediation)
4
18
3.5
16
3
14
12
2
10
%
%
2.5
1.5
8
1
6
0.5
4
0
-0.5
Japan
Germany
France
UK
Italy
US
-1
2
0
TFP growth
Growth rate in ICT capital service
25
5. The Role of Intangible Assets (2)
• Some economists have argued that intangible assets
play a complementary role in the effects of ICT capital on
TFP growth.
• Recent discussions about intangible assets
(1) van Ark (2004) classified knowledge capital which plays
complementary role on ICT capital.
(2) The Economic Report of the President 2007 stressed
that the accumulation of intangible capital in the US is a
key factor in the long-term growth of the US economy.
(3) Corrado, Hulten and Sichel (2005; 2006) and Marrano
and Huskel (2006) measured intangible investment in
the US and the UK respectively.
26
5. The Role of Intangible Assets (3)
• Annual intangible investment in Japan was 48
trillion yen on average from 2000 to 2004.
• The ratio of intangible investment to GDP was
9.2%, which is less than the equivalent figure in
the US and the UK.
• Moreover, the ratio of intangible investment to
tangible investment was much lower than that in
the US.
• As a result, the contribution of intangible assets
to economic growth in Japan was less than that
in the US.
27
Intangible investment in Japan
60000
Economic competencies
50000
Innovative property
Computerized information
30000
20000
10000
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
0
1980
billion yen
40000
28
Intangible Asset Investment: Japan, the US and the UK
Japan
US
UK
(billion yen)
(billion US
dollars)
(billion pounds)
(2000-2004)
(1998-2000)
(2004)
10,630
154
19.8
(2.0)
(1.7)
(1.7)
23,841
424
37.6
(4.6)
(4.6)
(3.2)
13,356
505
69.3
(2.6)
(5.4)
(6.0)
47,827
1085
126.7
Intangible investment /GDP (%)
9.2
11.7
10.9
Intangible investment/tangible
investment
0.5
1.2
Computerized information
Innovative property
Economic competencies
Total
1) Figures in parentheses are GDP share in each item.
2) Sources: Japan-author's calculation, US-Corrado, Hulten and Sichel (2006),
UK-Marrano and Huskel (2006)
29
Source of Labor Productivity Growth
Japan
US
(1995-2000)
(1995-2003)
Labor productivity (%)
2.20
3.09
Capital deepning
1.93
1.68
Tangibles
1.35
0.85
Intangibles
0.58
0.84
Labor composition
TFP
0.33
0.27
1.08
Source: Japan - author's calculation,
US - Corrado, Hulten and Sichel (2006)
30
5. The Role of Intangible Assets (4)
• We also measure intangible investment in the
service sector and the non-service sector
separately.
• Intangible investment in the service sector
amounted to 29 trillion yen on average from
2000 to 2004 and its share in total intangible
investment was about 60%.
• The ratio of intangible investment to value added
in the service sector was 10.4%, which was
higher than that in the economy as a whole.
31
Intangible investment (Service sector and non-service sector)
60000
non-service
service
40000
30000
20000
10000
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
0
1980
billion ye n
50000
32
Intangible investment/GDP (Service and non-service)
12
10
6
4
Intangible investment/GDP (service)
Intangible investment/GDP (non service)
2
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
0
1980
%
8
33
6. Policy Implications (1)
(1) The Japanese government should promote
ICT capital accumulation, which lags behind
other developed countries.
(2) To fill the gap in TFP growth between Japan
and the US, Japan should focus on closing the
TFP level in the service sector.→Globalization
in service sector.
34
6. Policy Implications (2)
(3) A requirement for the acceleration in TFP
growth in the service sector seems to be the
accumulation of intangible assets. We should
especially focus on the growth in human capital
and organizational change in order to fully enjoy
the potential benefits of the ICT revolution.
(4) The government should introduce accounting
guidelines for the valuation of intangible assets
in order to facilitate the financing of intangible
investment.
35
6. Policy Implications (3)
(5) It seems that the low intangible
investment/tangible investment ratio is a result of
the Japanese financial system, where financial
intermediaries have played the main role. In this
system, firms tend to accumulate tangible assets
rather than intangible assets, since the former
can be used as collateral to obtain funds from
financial intermediaries. A new financial system
in which intangible assets can serve as collateral
is required.
36
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