A half century of Trans-Pacific competition: price level indices and productivity gaps for Japanese and US industries, 1955–2012

Abstract

Trans-Pacific competition between Japanese and U.S. industries has provided powerful incentives for mutually beneficial economic cooperation between Japan and the United States. The benefits would be greatly enhanced by the proposed Trans-Pacific Partnership, an international agreement that would involve Japan, the United States, and 10 additional countries of the Asia-Pacific region. In this paper, we analyze competition between Japanese and U.S. industries in detail over more than a half century. We conclude with a discussion of opportunities for improving productivity performance in both countries. We first present new estimates of price level indices for Japan and the United States over the period 1955-2012. These indices are key indicators of international competitiveness between the two countries, often expressed as over-valuation or under-valuation of the Japanese yen relative to the U.S. dollar. We provide price level indices for outputs and inputs of 36 industries and for the two economies as a whole. The inputs at the industry level include capital, labor, energy, materials, and services (KLEMS). For an economy as a whole, output is gross domestic product (GDP) and the inputs are capital and labor services. We use our price level indices to generate new estimates of productivity gaps for the two countries and for individual industries. The productivity gap is an indicator of the efficiency of production. A wide Japan-U.S. productivity gap that existed in 1955 contracted for more than three decades, and Japan came close to parity with the United States in 1991. After the collapse of the "bubble economy" in Japan, the Japan-U.S. productivity gap widened again and only a few industries in Japan retained a productivity advantage over their U.S. counterparts in 2012. We conclude that industries sheltered from international competition offer the greatest opportunities for improvements in productivity performance.

Structural Change, Capital Deepening, and TFP Growth in Japan: 1885–1970

“…Further, Maddison (2007) conducted growth accounting from the Meiji period, although this was not at the industry level, but for all industries together. For industry-level growth accounting for the period from 1955 onward, see Jorgenson, Nomura, and Samuels (2016).…”

“…In contrast, increases in working hours per worker played hardly any role during this period. Meanwhile, table 13.3 in Jorgenson, Nomura, and Samuels (2016) suggests that increases in the quality of capital during the HSG period raised TFP growth by more than 1 percentage point. Taken together, these results suggest that about 40% of the TFP growth rate of 5.02% (annual average rate, including the contribution of improvements in factor allocation across sectors) in the HSG period we measured (Table 3) was due to increases in the quality of labor and capital (including the contribution of improvements in factor allocation across sectors).…”

China's Growth Slowdown: Lessons from Japan's Experience and the Expected Impact on Japan, the USA and Germany

“…Meanwhile, the slowdown in TFP growth after 1970 refl ects the fact that in certain areas Japan had managed to catch up with advanced economies. For example, in the production of important export products, such as TV sets and audio equipment, Japan's TFP level had almost reached the level of the USA by the early 1970s (Jorgenson et al, 1987(Jorgenson et al, , 2016. At the same time, Japan faced increasingly serious trade friction with other developed economies, and fi rms from the USA and Europe became more cautious in providing technology to Japanese fi rms through licensing.…”

Japan's Oligopolies: Potential Gains from Third Arrow Reforms

“…Indeed, the recent study by Jorgenson et al (2015) sees competition reforms directed to six industries that are largely insulated from international competition -real estate, electricity and gas, construction, other services, finance and insurance, and wholesale and retail trade -as the "final opportunity for Japan". They note that these industries have been largely insulated from domestic competition through government regulation and that major opportunities remain to improve overall Japanese productivity by fostering more competitive behaviour in them.…”

“…It has long been understood that Japan's services sector has been comparatively inefficient (Clark 1978, Kay and Clark 2005, Fukao 2010, Jorgenson et al 2015 and that this stems in part from strategic behaviour by mandated and structural oligopolies. It is also well understood that oligopoly pricing can stifle innovation and the Schumpeterian growth process.…”