Japan's Oligopolies: Potential Gains from Third Arrow Reforms

Abstract

Progress has been made in economic reform under the "Abenomics" first (monetary policy) and second (taxation reform) "arrows". The third, which emphasises structural reforms, has been more politically difficult, thus far yielding mixed results. This paper explores the gains that are possible from the labour market, tax and competition reforms embodied in the third arrow program. Economic rents and industry concentration levels are first identified from Nikkei firm specific data and used to construct an economy-wide model that represents oligopoly behaviour and its regulation explicitly. The analysis finds that modest gains in efficiency are available labour growth and, when it is accompanied by corporate governance reform, the switch between company and consumption taxation. Larger gains are shown to be available from active competition policy and, particularly, from productivity enhancing FDI in services. Central to the results is that a resurgent Japanese economy requires efficiency improvements that raise home rates of return and rebalance its large home and foreign asset portfolio toward home investment and capital growth.

Secular Stagnation: Determinants and Consequences for Australia

“…The control of oligopoly rents remains an important issue there. See Asano and Tyers (2015). 33 As further evidence we have the transformation of the frontier, high-technology sector from a highly competitive set of start-up firms to globally dominant multinationals that include Microsoft, Apple, Amazon, Google, Facebook, Uber and Netflix.…”

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“…The control of oligopoly rents remains an important issue there. See Asano and Tyers (2015). 31 Note that, due to constraints on porting and shipping capacity, combined with long term contracts between suppliers and electricity producers, the global market for natural gas has been less integrated than the others.…”