Overcoming Economic Stagnation in Japan: The Importance of Total Factor Productivity and the Potential Contribution of Foreign Direct Investment

Hi-Stat Discussion Paper No. 39

26 Pages Posted: 28 Feb 2006

See all articles by Ralph Paprzycki

Ralph Paprzycki

Hitotsubashi University - Institute of Economic Research

Kyoji Fukao

Hitotsubashi University - Institute of Economic Research

Date Written: August 2004

Abstract

The 1990s have been a decade of minimal growth for the Japanese economy. Examining this record from a growth accounting perspective, this paper argues that a major factor underlying Japan's disappointing growth performance in recent years has been a marked slow-down in total factor productivity (TFP) growth. It is suggested that, given present population trends and low returns on capital, any sustained increase in overall economic growth will require an acceleration in TFP growth. In this context, foreign direct investment (FDI) can potentially make an important contribution by increasing the degree of competition in the economy and, if foreign firms are more productive than domestic ones, by raising average TFP levels in Japanese industry.

Keywords: Japan, foreign direct investment, total factor productivity, growth

JEL Classification: F20, F21, F23, F43, D24, O4

Suggested Citation

Paprzycki, Ralph and Fukao, Kyoji, Overcoming Economic Stagnation in Japan: The Importance of Total Factor Productivity and the Potential Contribution of Foreign Direct Investment (August 2004). Hi-Stat Discussion Paper No. 39, Available at SSRN: https://ssrn.com/abstract=886003 or http://dx.doi.org/10.2139/ssrn.886003

Ralph Paprzycki (Contact Author)

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

Kyoji Fukao

Hitotsubashi University - Institute of Economic Research ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8306
Japan

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