It’s not Structural Change, but Domestic Demand: Japan’s Productivity Growth

This chapter examines the role of structural change in productivity growth in Japan, focusing on her recent lost decades, with reference to the United States. As a matter of fact, Japan and the US have shown quite contrasting performances in terms of aggregate productivity growth before and after the early 1990s (Figure 3.1). Jorgenson and Nomura (2007) state as follows: Before 1990: “The rapid closing of 3.7 per cent per year in the US-Japan gap in GDP per capita during 1960–1990 was achieved by 2.1 per cent annual growth in relative input per capita and 1.6 per cent annual reduction in the TFP[total factor productivity] gap.” But after 1990, “Japanese total factor productivity, relative to the US, fell from 86.1 in 1990, to 81.7 in 2000, and 79.5 in 2004, reflecting the sharp acceleration in US TFP growth after 1995 and the more modest recovery of Japanese TFP growth.”