Tsutomu Miyagawa

Despite major advances in technology, productivity growth has slowed across advanced economies. Brynjolfsson, Rock and Syverson (2021) argued that, due to the large intangible investments associated with digitalization, total factor productivity (TFP) growth may be underestimated and be higher after the investment boom. The resulting gap between standard and revised measures produces a J-shaped pattern, the “productivity J-curve”. Building on this work, we examine productivity estimates for five advanced economies: France, Germany, Japan, the United Kingdom and the United States. Using the estimated coefficients on intangibles (research and development, software, and organizational capital) in the value functions of listed firms over 2006-2020, we find that TFP underestimation caused by large intangible investments was largely unique to the United States, and was much smaller in Europe and Japan. This result is consistent with the recent productivity rebound in the U.S. and reinforces the call for investment in innovation in Europe and Japan.

Using the updated datasets on social infrastructure and regional productivity, we reexamine the contributions of social infrastructure on productivity improvements. Our study adds two new ideas to the previous studies on social infrastructure: 1) we consider the complementary role of intangibles to externalities of social infrastructure, and 2) we include a new measure -the spillover effects considering transaction volumes between two prefectures -—in our analysis. To conduct our study, we use three datasets: 1) the updated dataset of social infrastructure published by the Cabinet Office, Government of Japan, 2) the 2021 version of the Regional Japan Industrial Productivity Database, which measures intangibles at the prefectural level, and 3) the inter-regional Input-Output Tables, which are used for the measurement of our unique spillover effects. Using these datasets, we find that the ratio of intangibles to tangibles in the public sector in rural areas has not increased compared to those in the private sector and the public sector in the urban areas. In the estimation results based on the production function including social infrastructure and public intangibles, we do not find positive and significant externalities of social infrastructure. However, the coordination of social infrastructure with intangibles by industry contributes to the productivity improvements. In addition, we find positive and significant effects of social infrastructure in rural areas. We also find positive and significant contributions of social infrastructure for restorations from large earthquakes such as Great East-Japan Earthquake and Kumamoto Earthquake. Our results on intangibles and social infrastructure are consistent with our experiences during the COVID-19 pandemic, when the responses of the government to this pandemic were slow due to the lack of digitalization. Our study shows that we need to accumulate intangibles not only in the private sector but also in the public sector.