Miho Takizawa

Using Japanese firm-level panel data spanning from 2000 to 2013, we estimate industry-level production functions that explicitly take into account the complementarity and substitutability between tangible and intangible capital. The estimation results show that tangible and intangible capitals are complementary in most industries although the degree of complementarity substantially varies across industries. We further find that the relation between tangible and intangible capital in the production function accounts for the relation between firm-level tangible capital and intangible capital investments. Namely, firms’ tangible investments are more strongly positively associated with intangible investments as the degree of the complementarity between the tangible and intangible assets becomes larger. These findings show the necessity to take into account the relation between the dynamics of tangible and intangible capital in terms of their complementarity for precisely understanding the mechanisms governing a firm’s growth.

The economic impact of information and communications technology (ICT) investment is visible only with a long time-lag, particularly in the case of employment. There are two contrasting effects of ICT investment on employment: the complementarity relationships between capital and higher skills and the substitutability relationships between capital and lower skills and between the ICT capital intensity and wage rate of unskilled workers. The purpose of this paper is to provide empirical evidence on the impact of the skill-biased technical change associated with ICT investment on labor demand in Japan and Korea. Our estimates of the effect of ICT intensity on the wage share based on Japanese and Korean data are generally consistent with the estimates obtained by O'Mahony et al. (2008) in the sense that we find capital-skill complementarity and technology-skill substitutability during the period 1995-2015.

We investigate the international transmission of the 2007-2009 financial crisis to Japanese firms by examining both stock returns and changes in operating performance during the crisis. Our results indicate that Japanese firms were affected by the crisis mainly through the trade channel in both stock returns and changes in operating performance. We also find that the liquidity channel played a role in the fall of stock returns in response to the crisis and in the changes in return on assets during the first year of the crisis. We obtain weak evidence for the credit crunch channel and no evidence to support the trade finance channel.

Introduction Since the burst of the '‘bubble economy” in 1991, Japan has experienced sluggish growth in the economy overall as well as in total factor productivity (TFP). The first ten years of this stagnation – the '‘Lost Decade” – have been the subject of a considerable body of research. Studies have focused on financial problems such as banks’ non-performing loans, firms’ damaged balance sheets, and deflation as the main causes of Japan’s stagnation. By the early 2000s, Japan had largely resolved the non-performing loan problem as well as the problem of damaged balance sheets, but economic growth hardly accelerated, resulting in what now are '‘Two Lost Decades.” The argument put forward in this study is that Japan’s Two Lost Decades are not a transient problem of sluggish economic growth as a result of inappropriate fiscal and monetary policies but need to be seen from a more long-term and structural perspective, reflecting a chronic lack of demand and a long-term decline in productivity. It is certainly true that during the past two decades, Japan has persistently suffered from deflation or inflation that has remained below the central bank’s target. And there is no question that Japan needs to resolve the problem of deflation and escape from its liquidity trap in order to restore the effectiveness of conventional monetary policy. However, it seems very unlikely that Japan will be able to resolve its structural problems simply by stoking sufficient inflation to keep real interest rates negative or at least extremely low. In fact, maintaining very low or negative real interest rates for a prolonged period may give rise to bubbles like those in Japan during the late 1980s or the United States in the 2000s. Moreover, stimulating final demand will not be sufficient to accelerate Japan’s productivity growth. Against this background, the aim of this chapter is to examine the causes of Japan’s economic stagnation from a long-term, structural perspective and investigate whether it will be possible to resolve the causes of stagnation. Taking a long-term perspective that compares the two decades from the early 1990s onward with the preceding two decades and, at the same time, taking advantage of databases such as the Japan Industrial Productivity (JIP) Database and the EU KLEMS Database, we will compare Japan’s performance with that of the US and other advanced economies.

Following Corrado et al. (Review of Income and Wealth 55:658–660, 2009), we measure intangible assets at the listed firm level in Japan. Compared to the conventional Tobin’s Q, the revised Q including intangibles is almost 1 on average, as suggested by Hall (Brookings Papers on Economic Activity 1:73–118, 2000 and American Economic Review 91:1185–1202, 2001). The standard deviation of the revised Q is smaller than that of the conventional Q. Estimation results based on Bond and Cummins (Brookings Papers on Economic Activity 1:61–124, 2000) show that greater intangible assets increase firm value. In particular, in the IT industries, on average Tobin’s Q is higher than that in the non-IT industries, and the stock market reflects the value of intangibles in the IT industries. These results suggest that the government should adopt policies that promote investment, including intangibles in the IT industries, and change in industry structure in Japan.