Recent research has found that certain firms increase their innovative activity during periods of falling demand. This column investigates this puzzle by analysing how Japanese firms adjust their product mix over the business cycle. During transitions from recession to expansion, firm-level product churning – that is, simultaneously adding and dropping products – increases by 25%. The findings lend support to the ‘trapped factor’ model, in which negative demand shocks see the redeployment of underemployed resources towards innovation processes.
Andrew B. Bernard, Toshihiro Okubo, 23 April 2016
Sagiri Kitao, 15 April 2016
Most countries with a generous pay-as-you-go social security system and ageing demographics will need to implement significant welfare reform, such as a major cut in benefits or a significant increase in distortionary taxation. Individuals’ uncertainty about when such a policy change will occur will cause precautionary saving and changes in factor prices, affecting aggregate welfare. This column uses evidence from Japan to show that delaying welfare reform will benefit the elderly, at a long-lasting cost to the young.
Julia Tanndal, Daniel Waldenström, 13 April 2016
Financial deregulation in the US has been shown to be associated with rising income inequality over the past four decades. This column looks at the income effects of financial deregulation in the UK and Japan during the 1980s and 1990s. As in the US, deregulation substantially increased the shares of income going to the very top of the distribution. These findings highlight the importance of financial markets in the evolution of income inequality in society.
Masayuki Morikawa, 11 April 2016
Forecasts of business conditions affect investment decisions. This column provides evidence that this is the case in Japan, using firm-level data collected between 2004 and 2014 covering several significant economic events. It also shows that the impacts of business condition forecasts on investment are similar across manufacturing and non-manufacturing industries.
Yukiko Abe, Beata Javorcik, Naomi Kodama, 27 March 2016
Gender inequality is greater in Japan than in other developed countries, and in response the country has implemented steps towards improving female employment. This column presents new evidence suggesting that foreign companies are an unexpected ally in promoting female labour market participation. Foreign direct investment has the potential to improve the allocation of talent and contribute to faster economic growth.
Shujiro Urata, 16 February 2016
A series of mega-regional free trade agreements are currently being negotiated. This column argues that Japan is in a unique position to be able to negotiate with due regard for consistency among these agreements. It should thus seek to bring negotiations to a successful end and to expand and integrate the mega-regional FTAs. This will help rebuild the world trade regime so as to pave the way for achieving economic growth for the entire world.
Ayumu Tanaka, 17 January 2016
Firms that engage in international markets tend to pay higher wages. This column provides new evidence on the wage premiums for exporters and multinational firms in Japan. The results show that wage premium for foreign-owned firms is far more important than that for exporters and domestically owned multinational firms.
Takanori Ago, Tadashi Morita, Takatoshi Tabuchi, Kazuhiro Yamamoto, 04 January 2016
There are common geographical differences in working hours between countries and regions. Working hours are longer in developing countries, as well as in more urbanised regions compared to rural ones. This column explains these differences with two key factors: production technology and urban agglomeration. Technological progress leads to a decrease in working hours, whereas urban agglomeration leads to an increase.
Yasuyuki Todo, 24 December 2015
The Trans-Pacific Partnership (TPP) agreement was reached in October following seven years of negotiations. This column examines how Japan can maximise the TPP’s effect on its economy, identifying several additional policies that will be necessary. These include support for Japanese small and medium enterprises seeking to expand operations overseas, and policies that encourage and ease incoming foreign direct investment.
Kazuhito Yamashita, 02 January 2016
The Trans-Pacific Partnership is being held up as a model for 21st century trade agreements. This column looks into its implications for Japan. It says that agricultural sectors such as rice and beef won’t be affected as some form of protection will remain. It concludes that while the TPP may help Japan gain access to foreign markets, Japanese agriculture has lost another opportunity for revitalisation.
Willem Thorbecke, 21 December 2015
A good understanding of the evolution of exports over the years is crucial for the design of trade policy. This column dissects Japanese exports using a gravity model and concludes that it would be beneficial for Japanese companies to diversify their exports by shipping more to China, Europe, and South Korea.
Jamal Ibrahim Haidar, Takeo Hoshi, 21 October 2015
The Abe administration has outlined a desire for Japan to rank among the top three OECD countries in the World Bank’s Doing Business ranking. This column uses the Doing Business ranking itself to identify potential reforms the country could pursue to improve its position. Several politically viable, non-judicial reforms could quickly and easily move Japan up in the ranking. The approach highlights how the Doing Business rankings can be used to inform policy reform discussions.
Hiroyuki Motegi, Yoshinori Nishimura, Kazuyuki Terada, 25 September 2015
It is still not clear whether the effect of retirement on health is positive or negative. This column discusses new evidence from Japan showing that it is likely positive. In Japan, elderly people reduce their smoking and drinking after retirement. People tend to smoke and drink with their colleagues, so the result is mostly due to a peer effect.
Hiroshi Yoshikawa, Hideaki Aoyama, Yoshi Fujiwara, Hiroshi Iyetomi, 05 September 2015
Deflation is a threat to the macroeconomy. Japan had suffered from deflation for more than a decade, and now, Europe is facing it. To combat deflation under the zero interest bound, the Bank of Japan and the European Central Bank have resorted to quantitative easing, or increasing the money supply. This column explores its effectiveness, through the application of novel methods to distinguish signals from noises.
Toshihiro Okubo, Yukako Ono, Yukiko Umeno Saito, 04 September 2015
The productivity of a firm depends on its interaction with its suppliers and customers. This column uses unique data from Japan to investigate the wholesalers’ role in transaction networks, considering both sides of the transaction. The likelihood that a firm uses wholesalers increases with smaller buyer-side firms and larger seller-side firms. In addition, wholesalers tend to be located closer to their manufacturing buyers and further from their manufacturing sellers than manufacturers are to their direct manufacturing partners.
Kaoru Hosono, Daisuke Miyakawa, Miho Takizawa, 27 August 2015
‘Learning by exporting’ refers to productivity gains experienced by firms after they commence exporting. Such gains are argued to be due to access to new knowledge and resources. This column explores some of the preconditions for learning-by-exporting effects, using data on the overseas activities and affiliations of Japanese firms. Firms that enter markets in which they don’t have affiliates or subsidiaries are found to enjoy the most learning-by-exporting productivity gains. These findings have implications for the timing of new market entry.
Peng Xu, 03 August 2015
Corporate Japan is known for avoiding uncertainty. This is one of the reasons why changes of any kind are difficult – but not impossible – to realise. This column employs firm data to show that foreign direct investment has been changing corporate Japan by pursuing risk taking in private Japanese firms. This risk taking is positively related to firms’ sales growth and corporate earnings.
Dale W. Jorgenson, Koji Nomura, Jon D. Samuels, 08 July 2015
The two lost decades in Japan and the Global Crisis of 2007–2009 have created new opportunities for economic growth. This column describes the evolution of productivity across sectors in Japan and the US and suggests that the greatest payoffs for Japan would come from combining the Trans-Pacific Partnership with domestic reforms and encouraging foreign direct investment.
Jean-Pascal Bassino, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta, Masanori Takashima, 01 July 2015
Japan was the first Asian nation to achieve modern economic growth. This column discusses new evidence suggesting that Japan’s growth started from a lower level than Britain’s and grew more slowly until the Meiji Restoration. The key to understanding modern economic growth seems to lie in identifying the forces that dampened growth reversals, rather than the forces responsible for growth itself.
Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu, 29 June 2015
Japanese firms have been struggling with the yen’s volatility ever since the peg was dropped in 1973. This column, based on a recent survey of Japanese firms, argues that many firms have managed their exchange rate exposure by using operational and financial hedging strategies. It also finds that firms employing currency hedge and invoicing exports in yen are judged by the market to have reduced currency exposures.